4th May 2016 10:11
LONDON (Alliance News) - J Sainsbury PLC on Wednesday said it swung to a pretax profit in its recently-ended financial year, as the business picked up from the prior year, but revenue still slipped in a tough UK grocery and the group trimmed its its dividend.
Shares in Sainsbury's were trading down 5.6% at 269.79 pence on Wednesday morning, one of the worst performers in the FTSE 100.
The supermarket chain said it made a pretax profit of GBP548 million in the year ended March 12, having suffered a GBP72 million pretax loss the prior year, when it booked property writedowns and impairments after having to curtail expansion plans.
Despite the return to profit, it was still lower than the GBP898 million Sainsbury's made in financial 2014.
Underlying pretax profit, which excludes charges relating to property impairments and other exceptional costs, still fell to GBP587 million from GBP681 million, as revenue slipped to GBP23.51 billion from GBP23.78 billion.
Sainsbury's cut its dividend for the year 8.3% to 12.1 pence from 13.2p the year before, reiterating that it pays "an affordable dividend" covered two times by underlying earnings.
Sainsbury's and its big four peers have been facing a tough grocery sector in recent times, faced by mounting competition from German discounters Aldi and Lidl, which has forced them to lower prices in order to woo back customers who have been shopping elsewhere and ultimately boost sales.
In November 2014, Sainsbury's Chief Executive Mike Coupe pledged to invest GBP150 million a year in price cuts for the following three years, which so far has resulted in price reductions of over 1,900 products.
Sainsbury's has also been working to reduce promotional activity in favour of lower regular prices as supermarkets have been accused of confusing customers with various multi-buy offers. Sainsbury's plans to phase out the "vast majority" of multi-buy promotions across the grocery business both in store and online by August 2016.
Sainsbury's has already phased out more than 50% of multi-buy promotions since March 2015, across its dairy, canned and packaged goods, meat, fish and poultry categories, and it now intends to extend this across its full range of branded and own-brand soft drinks, confectionery, biscuits and crisps.
Last month, the supermarket also axed its Brand Match scheme in favour of lower regular prices. Brand Match compared prices on branded products with rival supermarket Asda Stores Ltd, owned by US giant Wal-Mart Stores Inc. If, at the end of a customer's shop, it was found they could have paid less for an identical basket of branded products at Asda, the customer would receive a coupon for the difference in price.
Sainsbury's said it will reinvest the money from Brand Match into cutting the regular prices of key products such as chicken, bread, cheese, fresh produce and household cleaning items.
The retailer also intends to improve the quality of 3,000 own-brand products, with 750 improvements made to date.
"We are making good progress against the strategy we outlined to shareholders in November 2014. We continue to outperform our main supermarket peers and maintain market share in a competitive, deflationary environment," Coupe said in a statement on Wednesday.
However, despite the sales-boosting measures Sainsbury's has undertaken, the retailer said it is still being hit by ongoing pricing pressures and food price deflation, leading to a decline in like-for-like sales of 0.9%.
Like-for-like sales had been improving during the course of the year, starting with a 2.1% decline in the first quarter, which improved to a 1.1% fall in the second quarter, and easing again to a 0.4% fall in the third quarter, before finally returning to growth of 0.1% in the fourth quarter. This was its first quarterly like-for-like sales growth in two years.
According to the grocery data released by Kantar Worldpanel every 12 weeks, Sainsbury's had been the star performer out of the big four supermarkets, having consistently been the only one to achieve sales growth over the course of several months.
However, in the latest data released on Wednesday, Sainsbury's dipped into its first decline since July last year as its sales in the 12 weeks ended April 24 fell by 0.4%.
This was still a better performance than its major competitors, however. Tesco PLC, Britain's largest grocer, saw sales fall 1.3% in the period, while fellow blue-chip group Wm Morrison Supermarkets PLC experienced a 2.6% decline. Asda, which Sainsbury's overtook to become the second-largest grocer by market share in November last year, saw sales decline 5.1%.
Sainsbury's noted that while UK household disposable incomes have continued to rise as a result of wage growth coupled with falling fuel and food prices, food retailers are "yet to benefit" from this growth as consumers choose to spend their discretionary income on things such as holidays and eating out.
Sainsbury's did say though that volume and transactions increased in the year due its investment in lower regular prices, but admitted this was not enough to offset the deflationary environment.
Sainsbury's added it is on track to deliver its three-year GBP500 million cost saving programme by the end of financial 2018, having made operating cost savings of GBP225 million in financial 2016.
"The market is competitive, and it will remain so for the foreseeable future. We believe we have the right strategy in place and are taking the right decisions to achieve our vision to be the most trusted retailer where people love to work and shop," Coupe said in a statement.
Sainsbury's added that it expects its acquisition of Home Retail Group PLC to take place in the third quarter of 2016, but added no further comment on the deal.
Last week, Home Retail posted a GBP840.3 million pretax loss for the year to February 27, compared to a GBP87.8 million profit a year earlier as it booked an GBP852.0 million goodwill impairment as a result of its takeover by Sainsbury's.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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