Sainsbury's issues dividend cut warning and joins supermarket price war after slumping to half-year loss
Sainsbury’s waded in to the supermarket price war, cutting its dividend to pay for £150m worth of discounts on food and clothing.
Britain’s third-biggest grocer slumped to a half-year loss and warned its second-half profit would be hit as it announced a range of measures to save cash.
New chief executive Mike Coupe plans £500million of cost savings over the next three years and will cut annual capital spending to £500million-£550million from £925million. He will also scale back store openings and expansions, opening 500,000 sq ft of space next year instead of the intended 750,000 sq ft. The measures will all partly fund price cuts.
Hit: Sainsbury's announced a range of measures to save cash
All the grocers have been hit hard by competition from discounters Aldi and Lidl, and shoppers looking to convenience stores and online.
Sainsbury’s had been the least affected, but earlier this year ended its record of nine years of sales growth. It has just posted a 2.1 per cent fall in underlying sales for the half-year. It slumped to a £290million loss for the 28 weeks to September 27, from a £433million profit after taking a one-off charge of £663million, writing down the value of stores and also land on which it has yet to build shops.
When asked whether such a large write-down was a failure of management, Coupe said: ‘Your comment is valid but we are playing for the long-term. Once you have got momentum on expansion it’s hard to slow down.’
The shares fell 3p to 266.1p despite Coupe maintaining the interim dividend at 5p a share.
However, he fixed the dividend cover at twice underlying earnings, which means, with the expected fall in profit, the full-year dividend has effectively been cut.
He estimated the discounters will eventually take a 15 per cent share of the market. He also said 25 per cent of his own stores have too much space.
Sainsbury’s launched its own discount chain Netto as part of a joint venture and will place some within Sainsbury’s stores.
In the wake of troubles at rival Tesco, Coupe said he was ‘100 per cent confident’ that Sainsbury’s had not inflated its own profits.
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