25th Sep 2019 08:24
(Alliance News) - J Sainsbury PLC on Wednesday issued a profit warning for the first half of its financial year, despite recording a second quarter grocery sales rise, and announced a freeze on putting new cash into its Financial Services arm as part of an overhaul of the unit.
In the second quarter ended September 12, retail sales, excluding fuel, rose by 0.1% year-on-year but on a like-for-like basis, fell by 0.2%. Including fuel, sales also rose by 0.1% on a year before but fell by 0.4% on a like-for-like basis.
Grocery sales rose by 0.6% and clothing sales increased by 3.3%, the FTSE 100-listed firm added. General merchandise sales declined by 2.0%, however.
Argos grew in market share, Sainsbury's said, but sales were hurt by "reduced promotional activity" and the timing of gaming and toy releases.
Last week, Kantar survey data showed Sainsbury's sales stayed broadly flat at GBP4.10 billion in the 12 weeks to September 8, though its UK market share slipped to 15.3% from 15.4%.
Chief Executive Mike Coupe said: "Sales momentum was stronger in all areas and we further improved our performance relative to our competitors, particularly in grocery. Argos continued to grow market share in key categories, but sales were impacted by reduced promotional activity and the timing of new product releases in gaming and toys.
"Clothing sales were boosted by clearance activity and strong online growth and Tu continued to grow market share. Financial Services sales were in line with expectations."
The company forecasts its underlying pretax profit to fall by roughly GBP50 million in the first half, attributed to "impacts of the phasing of cost savings, unseasonal weather against a strong comparative period last year and higher marketing costs."
Looking further ahead however, Sainsbury said it is "on track" to deliver a full-year underlying pretax profit of GBP632, in line with consensus.
The company said an internal review resulted in plans to launch 10 new supermarkets but close between 10 to 15. Roughly 100 new convenience stores will be built but between 30 and 40 will be closed. It also plans to open roughly 80 new Argos stores but close between 60 and 70.
Sainsbury added: "We expect the closures to deliver an ongoing net operating profit benefit of roughly GBP20 million per year. We expect the one-off cost of closures and impairments to be GBP230 million to GBP70 million, of which the cash cost will be GBO30m to GBP40 million."
Turning to financial services, the firm said it will "immediately stop new mortgage sales" and have no more "capital injections" after a GBP35 million investment in the year ending February 2020. It also aims to cut the cost to income ratio by around 50%.
The measures are part of a "five year plan" for its financial services unit with the aim of doubling underlying pretax profit and deliver double digit returns on capital employed.
Sainsbury also expects net debt to reduce by GBP300 million in financial 2020, as it now pursues a three year net debt reduction target of at least GBP750 million, up from GBP600 million.
The company will publish its full first-half results on November 7.
Shares in the Sainsbury were 1.6% higher at 216.50 pence each early on Wednesday morning in London.
By Eric Cunha; [email protected]
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