Business World

Tuesday 23 January 2018

Sainsbury's posts first underlying profit fall in a decade

A still from the 2014 Sainsbury's TV ad.
A still from the 2014 Sainsbury's TV ad.

British supermarket Sainsbury's on Wednesday posted its first annual underlying profit fall since 2005, hurt by an industry price war that shows no sign of abating.

Sainsbury's, along with rivals Tesco, Asda and Morrisons, is grappling with food price deflation and an intensifying price war launched 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 ($1 billion) in the year to March 14.

That was ahead of analysts' average forecast of 659 million pounds but was down 14.7 percent from the 798 million pounds made in the 2013-14 year.

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.

“The UK marketplace is changing faster than at any time in the past 30 years," said Chief Executive Mike Coupe.

"However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth."

The profit fall reflects Sainsbury's announcement in November to invest an additional 150 million pounds in lower prices, as well as its absorption of record levels of food deflation in categories where it trades strongly, such as produce, dairy, fresh ready meals, meat and fish.

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.

Coupe reckons these simpler promotions and a focus on product quality and innovation, as well as expansion of its non-food, online and convenience business, can combat the discounters' threat and that of market leader Tesco, which is showing signs of recovery under new boss Dave Lewis.

However, Coupe still expects supermarket like-for-like sales in the sector to fall for the next few years.

Sainsbury's is paying a full-year dividend of 13.2 pence per share, down 23.7 percent, in line with previous guidance.


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