9th Nov 2016 09:01
LONDON (Alliance News) - Grocer J Sainsbury PLC on Wednesday outlined plans to cut more costs in a competitive UK grocery market and said it is on track to hit its synergy targets from the acquisition of Home Retail Group.
This came as Sainsbury's said its pretax profit grew in the first half of its financial year, as total revenue ticked higher on transaction growth but like-for-like sales declined.
Shares in Sainsbury's were down 3.9% to 245.50 pence on Wednesday, the worst performer in the FTSE 100.
In March, Sainsbury's agreed to acquire Home Retail Group, the owner of catalogue retailer Argos, for GBP1.20 billion, a deal completed in August. Home Retail previously had owned Homebase, the DIY retailer, but this was sold prior to the acquisition. Habitat, Home Retail's furniture business, was retained by Sainsbury's, however.
Sainsbury's said it expects to have 250 Argos digital stores in its supermarket branches over the next three years, with 30 Argos digital stores and 200 digital click-and-collect points to be in its branches by this Christmas.
It said it remains confident it will deliver the GBP160.0 million in cost synergies it expects from the Argos deal over the next three years.
Beyond the removal of cost overlaps with Home Retail, Sainsbury's said it remains on track to meet its GBP500.0 million annual cost savings target in its 2018 financial year and said it intends to remove a further GBP500.0 million in annual costs from the business in the three years starting with its 2019 financial year.
Sainsbury's said its full-year underlying profit target, which includes a contribution from Argos, remains in line with market expectations. However, it expects profit in the core Sainsbury's grocery business to be weaker in the second half than in the first due to continued investments in cutting prices and higher cost inflation caused the weak pound after the Brexit vote.
The food seller said the full impact of sterling weakness is still uncertain and said pricing pressures remain an issue in a competitive UK grocery market, though it remains confident on its ability to navigate those challenges in the second half.
Sainsbury's said its four key areas for growth are: to evolve its food ranges; to grow clothing and general merchandise sales and deliver synergies from the Argos deal; to expand its Sainsbury's Bank business; and to pursue the planned cost savings.
Sainsbury's said its like-for-like sales fell 1.0% in the first half year-on-year, though total transactions on a like-for-like basis grew across its sales channels. Total group sales, excluding value-added tax but including fuel, rose 1.8% to GBP12.64 billion from GBP12.42 billion.
The group said its clothing sales performed well in a tough market and said the grocery market in the UK remains very competitive, with margins continuing to come under pressure.
The group said it made a GBP372.0 million pretax profit in the 28 weeks to September 24, up 9.7% from the GBP339.0 million made a year before.
Sainsbury's declared an interim dividend of 3.60 pence per share, down 10% from the 4.00p paid a year before, in line with its policy of paying an interim dividend equal to 30% of its full-year dividend for the previous financial year.
"Two years ago we set out our strategy to make our customers' lives easier, offering great quality and service at fair prices, serving our customers whenever and wherever they want. We have made good progress delivering this in challenging market conditions," said Chief Executive Mike Coupe
By Sam Unsted; [email protected]; @SamUAtAlliance
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