30th Apr 2020 09:23
(Alliance News) - J Sainsbury PLC on Thursday reported the Covid-19 crisis could hurt profit by GBP500 million, but it has seen a jump grocery sales during the virus pandemic, the retailer said as it reported annual results.
In the financial year ended March 7, sales including VAT nudged 0.1% lower to GBP32.39 billion from GBP32.41 million. On a like-for-like basis, sales were down 0.6%.
Pretax profit rose however to GBP255 million from GBP202 million.
The FTSE 100 firm joined many other listed firms and opted not to make a final payout. It means the company's total dividend for the year has been slashed by 70% to 3.3 pence from 11.0p.
"The board believes it is prudent to defer any dividend payment decisions until later in the financial year, when there will be improved visibility on the potential impact of Covid-19 on the business," Sainsbury's explained.
Full-year grocery sales were 0.4% higher. General merchandise, which includes the Argos catalogue retail unit, had a 2.9% annual fall. Clothing sales were up by 1.2%. This meant that total retail sales, excluding fuel, were 0.4% lower in the recently ended financial year.
Meanwhile at the Financial Services unit, total income was 1.1% higher at GBP444 million. Sainsbury's Bank is expected to be loss-making in the current financial year, however, the company cautioned.
It's the last annual report from Chief Executive Officer Mike Coupe, whose legacy after a near six-year stint at the firm was dimmed somewhat by a failed merger with Walmart Inc's Asda last year.
Departing Coupe said: "The last few weeks have been an extraordinary time for our business. This is an unsettling time for everyone, but I am incredibly proud of the way the business has responded."
Since the start of the new financial year, grocery sales in the seven weeks to April 25 have climbed 12%. Consumers in the UK have stockpiled on food and household products with shelf-life in fear of shortages later due to the pandemic.
The stockpiling even helped the general merchandise unit, which booked 3% sales growth during the period, with Argos alone climbing by 9%.
Clothing was out of fashion, though, as sales crashed 53% during the seven weeks.
Total retail sales, excluding fuel, were 8% higher over the seven-weeks to April 25.
The company said it has "modelled a broad range of scenarios" as it bids to grapple with how badly the Covid-19 pandemic will hit its trading.
"Our base case assumes that lockdown restrictions will have eased by the end of our first quarter (end June), but that the business will continue to be disrupted until the end of the first half (mid-September)," the company explained.
"Under this scenario we would expect group underlying pretax for the year to March 2021 to be broadly unchanged year-on-year. This includes a profit impact of over GBP500 million due to significant costs associated with protecting customers and colleagues, weaker fuel, general merchandise and clothing sales and lower financial services profitability, broadly offset by stronger grocery sales and approximately GBP450 million business rates relief. We have decided not to take up the government's offer of furlough payments or delaying VAT payment."
Sainsbury's added: "There are many sensitivities that sit behind these assumptions, above and beyond the duration of different stages of lockdown and there is not necessarily a linear relationship between the duration of Covid-19 impact, costs incurred and sales impact. Hence we cannot be more certain of this base case scenario than any other."
At Argos, Sainsbury's expects a percentage sales decline in the "low teens", during the lockdown. It said 573 standalone Argos stores have been closed. Some Argos sites located inside larger Sainsbury's stores are still operating.
Grocery sales during the lockdown are tipped to rise by high single-digits.
"Operating expenses will be materially higher than budgeted, particularly in the areas of retail and logistics labour, absence and instore costs, where we assume disruption will continue for most of the first half of our financial year. In addition, we anticipate higher stock clearance in clothing and some key seasonal areas. Finally, many of our cost saving programmes will be delayed due to the disruption," Sainsbury's added.
The company was trading 4.5% lower at 198.01p each in London on Thursday morning.
By Eric Cunha; [email protected]
Copyright 2020 Alliance News Limited. All Rights Reserved.
Related Shares:
Sainsbury's