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Sainsbury's Reveals Extent Of Price War Damage As It Swings To Loss

12th Nov 2014 07:26

LONDON (Alliance News) - J Sainsbury PLC Wednesday said it swung to a pretax loss in the first half of the year, and outlined its plans to cuts costs and capital expenditure, as the grocer revealed the depths of its struggles with the price war engulfing the UK supermarket sector.

Sainsbury's, the UK's third-largest supermarket chain by market share, reported a pretax loss of GBP290 million for the 28 weeks to September 27, compared with a pretax profit of GBP433 million in the same period the prior year.

"The UK grocery market is changing faster than at any time in the past three decades. We must evolve our business to meet the challenges this presents to ensure we continue to win for customers, colleagues and shareholders," the grocer said in a statement.

Sainsbury's said it swung to a loss after booking a GBP665 million impairments and onerous contract charge during the period.

"We have impaired a number of our trading stores and have also decided to withdraw from a number of schemes in our property pipeline that are unlikely to achieve an appropriate return on capital," it said.

Sainsbury's said that it will maintain its competitiveness on price versus its main supermarket peers, by working in "close partnership with its suppliers to deliver value chain efficiencies which can be reinvested in price".

"In order to execute this strategy, it is essential that we maintain the strength of our balance sheet. We will therefore be cutting our capital expenditure and making significant cost savings, as well as ensuring we pay an affordable dividend," said Chairman David Tyler in the statement.

The grocer maintained its interim dividend at 5.0 pence per share, the same as last year, and said it will fix its dividend cover at 2.0 times its underlying earnings for 2014/15 and the next three years.

"Our dividend for the full year is likely to be lower than last year, given our expected profitability," said Tyler.

Current analysts consensus is for Sainsbury's to report an underlying pretax profit of around GBP677 million for the full financial year.

Sainsbury's reported a 0.1% fall in group first-half revenue to GBP12.67 billion, down from GBP12.68 billion last year. Like-for-like sales were down 2.1% excluding fuel, as its sales decline accelerated in the second quarter.

"We expect supermarket like-for-like sales in the sector to be negative for the next few years, but we have robust plans to address this challenge," Sainsbury's said.

Prior to these declines, Sainsbury's had been enjoying 36 quarters of growth on a like-for-like basis, meaning nine years of unbroken sales growth. Last year, first-half like-for-like sales excluding fuel were up 1.4%.

By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty

Copyright 2014 Alliance News Limited. All Rights Reserved.


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