Sainsbury’s posts first Loss in Ten Years
British retailer Sainsbury’s posted its first annual loss in a decade, hurt by property writedowns, deflation and an industry price war, and warned investors not to expect trading conditions to improve any time soon.
Chief Executive Mike Coupe said on Wednesday he expected deflation to persist in the grocery market for the rest of 2015 and possibly into 2016, and did not rule out further investment in price cuts beyond the 150 million pounds ($227 million) already committed to.
“The underlying pressures of the industry will remain from a deflation point of view and therefore you would expect that the underlying sales growth of the industry will be negative for the foreseeable future,” he said.
“We have to plan on the downside and hope on the upside.”
Shares in Sainsbury’s, already down 14 percent over the last year, fell a further 2.8 percent.
Shore Capital analyst Clive Black said Sainsbury’s may not have reached the end of its profit downgrade cycle.
“In particular, we are concerned that a revitalising Tesco may hit Sainsbury’s trading patterns,” he said, referring to signs of turnaround at Britain’s biggest retailer.
Sainsbury’s, along with rivals Tesco, Asda and Morrisons, is cutting prices to stem the flow of shoppers to discounters Aldi and Lidl.
All are also having to adapt as consumers shop more frequently and locally, and buy more online.
Sainsbury’s made an underlying pretax profit of 681 million pounds in the year to March 14. That was ahead of analysts’ average forecast of 659 million but down 14.7 percent from the 798 million made the year before.
After booking 753 million pounds of exceptional charges, mainly impairment charges on existing stores and the property pipeline announced alongside half-year results in November, Sainsbury’s posted a statutory pretax loss of 72 million pounds.
Last month, property write downs were a major factor in Tesco reporting an annual loss of 6.4 billion pounds, one of the biggest in British corporate history.
Sainsbury’s group sales fell 0.9 percent to 26.1 billion pounds, while sales at stores open over a year, excluding fuel, fell 1.9 percent.
Sainsbury’s is cutting capital expenditure, costs and dividends to finance price cuts.
“We will remain competitive on price. If others move on price in the market, we will follow absolutely. We have the financial capacity and the flexibility to do so,” said finance chief John Rogers.
Coupe reckons price cuts, simpler promotions and a focus on product quality and innovation, as well as expansion of Sainsbury’s non-food, online and convenience businesses, can combat the threat from discounters and Tesco.
Sainsbury’s is paying a full-year dividend of 13.2 pence per share, down 23.7 percent, in line with previous guidance.
Separately on Wednesday, industry data showed sales fell at all of Britain’s big four grocers over the last three months.
Source: Reuters
