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Sainsbury's reports 6.3% drop in profits

Sainsbury’s has posted a 6.3% drop in its underlying pre-tax profit in the first half of its financial year as it warned that it expects like-for-like sales to fall "for the next few years".

GENERAL MERCHANDISE

Sainsbury's reports 6.3% drop in profits

In the 28 weeks to 27 September, underlying pre-tax declined to £375 million from £400 million in the same period in the previous year.

Meanwhile, retail sales excluding fuel were flat while like-for-like sales fell by 2.1%.

Underlying group sales edged down 0.3% in the period to £13.9 billion.

In a statement, the retailer said the grocery sector was undergoing structural change as customers shop more frequently, and use online, convenience and discount channels more. As a result, it expects supermarket like-for-like sales in the sector to be negative for the next few years.

Mike Coupe, Sainsbury’s chief executive, said: “Our strategy is evolving to address the continuing shifts in customer shopping patterns which we believe will lead to a greater emphasis on product quality and ease of shopping, and an increase in multi-channel shopping.

“We will continue to differentiate ourselves from a position of strength by offering great products and services at fair prices, investing in the quality of our food and investing in price in areas where our customers tell us it matters most. By knowing our customers better than anyone else we will continue to serve them through multiple channels and in ways that make their lives easier, regardless of changes in the market” 

Sainsbury’s is planning to invest an additional £150 million in price, of which approximately half will fall in the second half of 2014/15 and the remainder in the first half of 2015/16. It will also continue to grow its non-food business with a focus on design-led clothing, cookware, homewares and seasonal products. 

In addition, the retailer is looking to open 500,000 square feet of space in each of the next two years, followed by 350,000 square feet in 2017/18. This will include eight new supermarkets over that period. Over half of the new space will be convenience stores as the retailer targets the opening 100 convenience stores per year.

However, Sainsbury’s is also planning to deliver total operating cost savings of £500 million over the next three years. This will represent annual operating cost savings in the range of £150 million to £175 million, a step up from recent levels. The retailer will also reduce capital expenditure to between £500 million and £550 million per annum over the next three years.

Following a  review of its supermarket estate, Sainsbury’s said it has concluded that over the next five years, around 25% of its store portfolio will have some under-utilised space which could  be used to expand its non-food offer or for concession partnerships.

Coupe continued: “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.”

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