Sainsbury's (LON:SBRY) share has ticked higher on the back of the first-half figures being released. Pre-tax profit slumped by 92% to £9 million as total one-off costs of £229 clobbered earnings. Stripping out exceptional items, underlying profit dropped by 14.6% to £238 million – in line with the guidance. The group had to endure higher marketing costs as well as the phasing out of cost savings. The joint venture with British Land continues to reap rewards as retail free cash flow increase by 13%. Net debt was trimmed and the interim dividend was nudged higher.
The company’s failed merger attempt with Asda cost the firm financially, but so did the opportunity cost. The move would have led to synergies, and would have helped bolster its position in the industry. As a part of its change in strategy, the group will focus on digitally-led products and services for Sainsbury’s and Argos customers. E-commerce is becoming a bigger part of the entire retail sector and Sainsbury’s need to stay relevant. The Fast Track delivery and collection are still growing which is encouraging as the firm is keeping up with consumer trends.
Sainsbury’s revealed plans to close stores in late September. The group is planning to close down undeforming stores, as well as open new ones in more desirable locations. The firm intends to shut 30-40 convenience stores, while at the same time, it will open 110 new outlets. As far as Argos goes, 80 news stores will be added but between 60 and 70 shops will be closed. The group announced it will halt mortgage sales as it intends to get back to basics. The update echoed Tesco (LON:TSCO) announcement in May that it will stop offering mortgages. Sainsbury’s, like its competitors has undergone restructuring, and this in a continuation of the scheme.
The store closures will cost the company £230 million - £270 million, but on a positive note, the firm now aims to reduce debt over the next three years by at least £750 million, while the previous target was £600 million. In the same update, the supermarket group posted its second-quarter sales figures.
Like-for-like sales excluding fuel dropped by 0.2%. The underwhelming revenue numbers are probably why the supermarket will undergo a restructuring plan.
Kantar revealed their latest research figures on the UK supermarket sector in the middle of last month. The report claimed that Sainsbury’s outperformed in the 12 week period until early October as sales edged up by 0.6%. Morrisons underperformed as sales slipped by 1.8%, while Asda and Tesco (LON:TSCO) saw sales slip too. The deep discounters, Aldi plus Lidl keep growing at an impressive rate as their sales jumped by 7.3% and 8.2% respectively. The German stores have shaken up the British supermarket sector, which has prompted the likes of Sainsbury’s to stay lean, otherwise they run the risk of falling behind.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.