J Sainsbury plc Issues Better-Than-Expected Interim Results

Sainsbury’s (LSE: SBRY) unveiled its interim results today, and the figures were better than the market had been expecting. Indeed, the company reported that sales for the period rose 0.3% to £13.9bn. However, sales from stores open at least a year fell by 2.1%

Underlying pre-tax profit fell from £400m to £375m in the six months to September 27, although thanks to one-off charges, the group reported a loss before tax of £290m compared to pre-tax profit of £433m as reported in the year ago period. 

Still, Sainsbury’s did announce this morning that the company was maintaining the interim dividend at 5p. But management did warn that the final dividend payout is likely to be lower, as second half profit is now expected to be lower than that of the first. 

What’s more, the grocer is targeting £500m of cost savings over the next three years. Capital expenditure is also being slashed to save cash. These cost savings will help the group fund £150m of price cuts.

Commenting on today’s results, Mike Coupe, Chief Executive said: 

“Sainsbury’s is a great business. Our consistent outperformance of our main supermarket peers over the past five years is evidence of this. We are facing into a once-in-a-generation combination of cyclical and structural change in the industry, but I firmly believe that this strategy, building on our unique heritage and track record of success and delivered by the most experienced management team in retail, will focus and energise our business to the benefit of customers, colleagues and shareholders alike.”

Gloomy outlook 

Despite today’s relativity upbeat trading statement from Sainsbury’s, the company’s outlook for the UK grocery market is extremely concerning.

For example, as covered above, Sainsbury’s management believes that group profit during the second half of the year, will come in considerably lower than that reported during the first half. Moreover, the grocer now believes that supermarket like-for-like sales across the sector will be negative for the next few years.

So, it would appear as if the sector’s really going to suffer from now until the end of the decade. Unfortunately, it’s questionable whether or not Sainsbury’s will be able to compete effectively in this tough retail environment. 

That being said, the grocer’s recent join venture with Scandinavian retailer Dansk Supermarked, to bring Danish discounter Netto back to the UK should give Sainsbury’s an edge over its peers. 

However, with Tesco, Morrisons and now Sainsbury’s all slashing costs to compete effectively with the discounters, things are going to get very messy within the UK grocery sector. Sainsbury’s’ reported loss before tax announced today could be a sign of things to come for the retailer.