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Sainsbury's profits slide 18% amid supermarket price war Sainsbury's braced for another difficult year as profits slide 18%
(about 9 hours later)
Sainsbury’s has reported an 18% slide in profits, hit by lower sales and a fierce supermarket price war. Sainsbury’s has warned of another tough year for Britain’s biggest supermarkets as a result of falling food costs and the growing popularity of discount chains, after half-year profits fell nearly 20%.
The retailer said it was expecting a “more buoyant” Christmas as it posted a profit before tax and one-off items of £308m for the 28 weeks to 26 September. The figure is Sainsbury’s lowest first-half profit since 2010 and down from £375m reported a year earlier. Mike Coupe, the chief executive, said Sainsbury’s was at least hoping for a more buoyant Christmas, because shoppers are on average £20 a week better off than a year ago.
However, the performance was better than expected by City analysts, who had been forecasting a far larger fall in profits, to between £284-293m. He said the extent of promotional activity by rivals was not yet clear. But Sainsbury’s has pencilled in a £30m profit hit from price cutting over the next six months, on top of an £80m impact from reductions on meat, fruit and vegetables in the first half of its financial year.
Sales at stores open for at least a year fell 1.6%, excluding petrol, as food sales fell nearly 1% and the retailer cut prices by nearly 2.5%. Price cuts contributed to an 18% slide in Sainsbury’s profit before tax and one-off items to £308m for the 28 weeks to 26 September. The figure is Sainsbury’s lowest first-half profit since 2010 and down from £375m reported a year earlier.
However the performance was better than expected by City analysts, who had been forecasting a far larger fall in profits, to between £284m-£293m. Sainsbury’s said it had been able to cut costs more than expected, partly by reducing food waste.
Sales at stores open for at least a year fell 1.6%, excluding petrol, as food sales fell nearly 1% and the retailer cut prices by nearly 2.5%. Coupe said the strategy he set out a year ago was working.
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Mike Coupe, the supermarket’s chief executive, said the strategy he set out a year ago was working.
Sainsbury’s has been cutting prices and improving product quality and customer service to stop customers defecting to the discounters. It has reduced the amount of sugar in its own-brand yoghurts and juices and launched a £10m, five-year project called Waste Less, Save More, to tackle food waste.Sainsbury’s has been cutting prices and improving product quality and customer service to stop customers defecting to the discounters. It has reduced the amount of sugar in its own-brand yoghurts and juices and launched a £10m, five-year project called Waste Less, Save More, to tackle food waste.
He said Sainsbury’s would invest more in lowering prices as he expected deflation in the market to continue into summer 2016. “We have closed the gap with the discounters but we think there is room and opportunity for targeted investment in certain categories,” he said. Coupe said price deflation in the market would to continue into summer 2016 as commodity prices fall and competition with discounters Aldi and Lidl continued. “We have closed the gap with the discounters but we think there is room and opportunity for targeted investment in certain categories,” he said.
Coupe said those price cuts would not be of the same scale as the £150m of adjustments made just over a year ago, which helped Sainsbury’s move 10% closer to the discounters in price. Analysts said Sainsbury’s had cut prices by £80m in the past six months and is expected to trim them by another £30m in the next six months. The retailer has taken a £120m hit on profits over the last year by moving its prices 10% closer to the discounters.
Asked if profits would continue to fall as Sainsbury’s is forced to cut prices, its finance director, John Rogers, said it was too early to say. “We are encouraged by the momentum in the business but the reality is that the market remains uncertain and the loss of market share to the discounters from supermarkets overall is still taking place,” he said.Asked if profits would continue to fall as Sainsbury’s is forced to cut prices, its finance director, John Rogers, said it was too early to say. “We are encouraged by the momentum in the business but the reality is that the market remains uncertain and the loss of market share to the discounters from supermarkets overall is still taking place,” he said.
Sainsbury’s said the number of transactions at its tills and the volume of products sold had both risen in the half year as shoppers welcomed the lower prices, The group shifted 2% more of its top-of-the-range Taste the Difference products while clothing sales were up almost 10%, as it launched its Tu range online. Sainsbury’s said the number of transactions at its tills and the volume of products sold had risen in the half year as shoppers welcomed the lower prices. The group said sales of its top-of-the-range Taste the Difference products had risen 2% while clothing sales were up almost 10% after launching its Tu range online.
The retailer said the market remained challenging, blaming food deflation and tough competition from discounters such as Aldi and Lidl, which has reduced its market share to 16.5%. The retailer said the market remained challenging, blaming food price deflation and tough competition from discounters such as Aldi and Lidl, which has reduced its market share to 16.5%.
The latest profit beat came after Sainsbury’s a previous upgrade in September when the company said that annual profits would be higher than expected, because sales at its big stores had stabilised and it reduced the cost of food thrown away. Sainsbury’s added that its cost savings programme was ahead of plan, with savings of around £225m expected by the end of this financial year, leaving it on track to deliver £500m in cost savings over the next three years. Coupe said: “I am confident we are making progress and we are looking forward to a successful Christmas.”
On Wednesday, Sainsbury’s said its cost savings programme was ahead of plan, with savings of around £225m expected by the end of this financial year, leaving it on track to deliver £500m cost savings over the next three years. Clive Black, a retail analyst at stockbroker Shore Capital, said: “Sainsbury’s has beaten our expectations, not only financially but in terms of capability and so resilience. The business is increasingly crafting its own identity again, somewhat differentiated ‎as a mass market play by its values, choice of offer and the specification of its wares.
Coupe said: “I am confident we are making progress and we are looking forward to a successful Christmas.” “While not immune to the growing presence of the [discounters] to date it has proved to be more capable in withstanding their advances than its value orientated peers.”
He said shoppers had an average £20 a week more to spend this Christmas than last year and that suggested trading might be more buoyant. Sainsbury’s has been opening its own discount stores in the UK in partnership with Danish chain Netto. But a year after the joint venture launched, there are just nine Netto stores open. Coupe would only say performance was “so far so good” and a decision on the next phase of investment will be made early next year.
Clive Black, a retail analyst at Shore Capital said: “Sainsbury’s has beaten our expectations, not only financially but in terms of capability and so resilience. The business is increasingly crafting its own identity again, somewhat differentiated ‎as a mass market play by its values, choice of offer and the specification of its wares.
“Whilst not immune to the growing presence of the [discounters] to date it has proved to be more capable in withstanding their advances than its value orientated peers.”