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Sainsbury profits dive
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November 23, 1999: 8:46 a.m. ET
U.K.'s No. 2 food retailer sees profits dive 18% as price war bites
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LONDON (CNNfn) - J. Sainsbury, the U.K.'s No. 2 supermarket group, said Tuesday that underlying pretax profits fell almost 18 percent for the first six months, as intense competition hit the bottom line.
Pretax earnings fell to 352 million pounds ($571 million) in the six months ended Oct. 16, down from 427 million pounds last year, as margins are getting squeezed by an ongoing price war in the sector. The figure excludes a one-time charge of 55 million pounds relating largely to restructuring costs at its core supermarket and DIY businesses.
Total revenue rose by 4.5 percent to 9.1 billion pounds, but this disguised a 1.3 percent decline in comparable-store sales at its core U.K. supermarket business.
However, if new store openings are included, sales at Sainsbury's supermarkets grew by 0.7 percent to 6.9 billion pounds. Also, the retailing giant kept its interim dividend unchanged at 4.02 pence.
The group derives the rest of its sales from its Homebase DIY chain, a nascent banking operation, and Boston-based supermarket chain Shaw, acquired last June.
"An increasingly competitive market and the impact of the initial implementation of the initiatives to drive our offer forward had an adverse effect on the sales performance," the company said in a statement.
The company's stock price has suffered as a result of the price war, which heated up when U.S. mammoth Wal-Mart Stores entered the U.K. market earlier this year through its acquisition of the No. 3 chain Asda.
Sainsbury's shares fell almost 4 percent to 307 pence in London in early afternoon trading Tuesday.
Analysts said the result highlighted that the core supermarket business was still struggling. "Obviously the question mark remains can they turn Sainsbury around and it's far too soon to tell," said David Stoddart, food retail analyst at Investec Henderson Crosthwaite. He said he was in the process of cutting his current year forecast.
In June, the company said it would cut 1,100 jobs in a bid to cut costs of about 160 million pounds over the next three years. Sainsbury took a charge of 27 million pounds toward the restructuring in the first half.
The company was optimistic that it would hit its sales goals. "We are confident of meeting our target of positive like-for-like sales growth by the end of the year," Sainsbury said.
The company said spending on developing its e-commerce business would total 30 million pounds this year and added that total costs for ensuring its systems were Y2K compliant would reach 54 million pounds.
-- from staff and wire reports
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J. Sainsbury
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