11th Nov 2015 12:30
LONDON (Alliance News) - J Sainsbury PLC on Wednesday said the grocery market in the UK remains challenging and posted lower sales for the first half, even as it swung to a pretax profit in the period.
Shares in Sainsbury's were trading down 5.3% at 258.30 pence, the worst performer in the FTSE 100 Wednesday afternoon.
The FTSE 100-listed grocer said its pretax profit for the 28 weeks to September 26 was GBP339.0 million, swung from a GBP290.0 million loss made a year earlier due to writedowns it had booked.
Underlying pretax profit, which excludes profits or losses on property disposals, one-off items, pension scheme expenses and fair value movements, fell 18%, however, to GBP308.0 million from GBP375.0 million a year before.
Sainsbury's will pay an interim dividend of 4.0 pence per share, down 20% from 5.0p a year earlier. It said it plans to maintain full-year dividend cover at two times its underlying earnings for the full year.
Total group sales, excluding VAT and fuel, fell 2.0% to GBP12.42 billion from GBP12.67 billion a year earlier, it said. Underlying sales, including VAT, fell 2.0% to GBP13.64 billion from GBP13.92 billion.
Retail sales for the group, including VAT but excluding fuel, were down 0.1% in the half, while like-for-like sales were down 1.6%.
On a more positive note, the supermarket chain said customer transactions grew by almost 3% and product sales volume rose 1%, driven by its GBP150 million investment in price cuts. It said its Taste the Difference range delivered over 2% growth in volume.
Sainsbury's said the UK food market remains challenging and said its overall market share declined marginally in the first half to 16.5%, as it continued to face increased competition from discounters such as Aldi and Lidl.
It noted that while UK consumers are continuing to see an increase in disposable income through a combination of food deflation, lower food and oil prices and real wage growth, they are "not yet choosing to spend it on groceries".
"This means that mainstream grocers continue to see lower like-for-like sales and profits," Sainsbury's said.
"There are some signs of improvement in the sector, however it is too early to say whether the sector is starting to recover. Customers are buying more items, driving an increase in volume growth but this is currently being offset by price deflation, ensuring overall grocery expenditure remains relatively neutral," it added.
Sainsbury's said sales in the Tu clothing brand, however, grew by almost 10% in the half year.
The UK Office of National Statistics said Wednesday that earnings including bonuses increased by 3% and that excluding bonuses grew 2.5%, as Britain's unemployment rate declined to 5.3% in the three months to September.
Sainsbury's is focused on its cost-savings plans and said it remains on track to take GBP500.0 million in annual costs out of the business over three years, with GBP225.0 million of that to be achieved in the current financial year. This is higher than originally anticipated for the current year after it achieved savings of GBP115 million in the first half, which was ahead of its expectations.
It added that it is on track to open 15 Netto stores by the end of the financial year in its joint venture with Dansk Supermarked.
"We are making good progress against the strategy we outlined last November. We are delivering volume and transaction growth as customers value our quality improvements and our clearer, simpler message of lower regular prices," said Mike Coupe, Sainsbury's chief executive.
"The grocery retail marketplace remains challenging but Sainsbury's is a great business, run by an experienced management team, supported by talented colleagues and strong values. I am confident we are making progress and we are looking forward to a successful Christmas, offering our customers fantastic products and great value," Coupe added.
By Sam Unsted; [email protected]; @SamUAtAlliance and Karolina Kaminska; [email protected] @KarolinaAllNews
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