British grocer Sainsbury’s said on Wednesday it would cut costs and spending and accept lower profitability in order to bring down prices for customers to ward off rivals in an increasingly bitter British supermarket battle.
With Sainsbury's share price down a third in the last year, Mike Coupe, who took over in July, has been under pressure to come up with a strategy to avoid the even deeper problems experienced by market leader Tesco and smaller rival Morrisons.
Sainsbury’s said it would invest an additional £150 million (€191 million) in lower prices over the next 12 months, which means its profitability will be lower in the second half than the first half. It also expects its full-year dividend to fall.
The firm said it would open 500,000 square feet of space in each of the next two years, followed by 350,000 square feet in 2017-18 - down from the 750,000 square feet it expects to open in 2014-15.
The group also plans to increase its non-food range, offering more clothing, homewares and seasonal products, both to diversify its appeal and to fill excess store space that has developed as customers increasingly shop in smaller, local stores.
Sainsbury’s will slash capital expenditure to between £500 million and £550 million per year over the next three years, and deliver cost savings of £500 million over the three-year period, to help it fund the lower prices.
Sainsbury’s maintained its interim dividend at 5.0 pence and fixed its dividend cover at 2.0 times its underlying earnings for 2014-15 and over the next three years.
As a result, it said its dividend for the full year was likely to be lower than last year, given its expected profitability.
Sainsbury’s posted a profit before tax and one off items of £375 million for the six months to Sept. 27 - ahead of analysts’ expectations of about £350 million but down from £400 million in the same period last year.
The firm posted a statutory pretax loss of £290 million, reflecting exceptional charges, including an impairment and onerous contract charge of £628 million.
Reuters
