James Davey and Kate Holton
SAINSBURY’S cut its full-year sales forecast yesterday and said it would assess its dividend policy as part of a strategic review after second-quarter sales fell sharply, adding to the turmoil in the grocery market.
Shares in the company, which trails troubled market leader Tesco and is battling with Walmart’s Asda to be the UK’s second-largest grocer, rose initially on relief that sales had not fallen further.
But the shares started to slide after the group said it would review its dividend payout as part of a wider strategic update to be revealed next month. The share’s 6.4 percent fall by 3pm in London adds to a 31 percent drop so far this year.
The UK grocery market has been turned upside down in recent years as discounters Aldi and Lidl started aggressively winning market share from the traditional big four grocers.
That sense of disarray was compounded last month by the revelation that Tesco had found a hole the size of £250 million (R4.6 billion) in its accounts, dragging the sector down.
Sainsbury’s said it too had been hit by “the most challenging market conditions in 30 years” and it now expected second-half underlying sales to fall about 2.1 percent.
It had previously forecast growth of about 0.2 percent.
“In the second quarter, our performance has been impacted by the accelerated pace of change in the grocery market, including significant pricing activity and food price deflation in many areas,” said Mike Coupe, who succeeded Justin King as chief executive in July.
“These conditions are likely to persist,” he added.
In better news for investors, the firm had full confidence in its accounts, following the debacle at Tesco, which said it was now being investigated by the UK’s financial regulator.
Shore Capital analyst Clive Black said although the recent trading was better than feared, he expected to cut his full-year forecasts, downgrading profit expectations by 17 percent.
Sales at stores open a year, excluding fuel, fell 2.8 percent in the 16 weeks to September 27, Sainsbury’s second quarter. That compared with analyst forecasts of a 3 percent to 4 percent drop and a fall of 1.1 percent in the first quarter.
Until the fourth quarter of its 2013/14 financial year, Sainsbury’s had posted nine unbroken years of sales growth.
Data last week confirmed Asda as the best current performer of the big four UK grocers, with its market share up 1 percentage point year on year to 17.4 percent, while Sainsbury’s slid 40 basis points to 16.2 percent. – Reuters