Qatar-backed Sainsbury's cuts full-year sales forecast

UK grocery giant - 25.9% owned by Qatar - also says its shares slide as it warned it would assess its dividend policy
Qatar-backed Sainsbury's cuts full-year sales forecast
UK supermarket giant J Sainsbury this week moved closer to opening its company books for due diligence to Delta Two, after the Qatari-backed investment fund offered to increase the equity proportion in its 10.6 billion pound ($21.3 billion) takeover bid.
By Reuters
Wed 01 Oct 2014 02:23 PM

British grocer J Sainsbury, which is 25.9 percent owned by Qatar, cut its full-year sales forecast 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 Wal-Mart Stores' Asda to be the UK's No. 2 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 in November. The 3 percent fall adds to the 31 percent drop recorded so far this year.

The British grocery market has been turned upside down in recent years since 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 £250 million ($405 million)-sized hole in its accounts, dragging the whole sector down.

Sainsbury, which has fared better than most during the downturn, said it too had been hit by what it described as the most challenging market conditions in 30 years, and said it now expected second-half underlying sales to fall around 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 for the foreseeable future," he added.

In better news for investors the company said it had 100 percent confidence in its accounts, following the debacle at Tesco which said on Wednesday it was now being investigated by the country's financial regulator.

The sector has fallen sharply since Tesco said on September 22 that it had overstated first-half profit by 250 million pounds. The mis-statement related to income the grocer receives from food suppliers for selling more of their goods.

Sainsbury's said sales at stores open a year fell 2.8 percent, excluding fuel, in the 16 weeks to September 27, its fiscal second quarter. That compared with analysts' forecasts of down 3-4 percent and a fall of 1.1 percent in the first quarter.

Up until the fourth quarter of Sainsbury's 2013-14 year, the grocer had reported nine unbroken years of sales growth.

King was credited with reviving Sainsbury's fortunes during a decade at the helm. But he left at a time of major structural change in the UK grocery industry.

Though consumers are benefiting from little, if any, food price inflation, reflecting price cuts across the sector, they are continuing to spend cautiously and industry sales are growing at the slowest rate for more than two decades.

Consumers are increasingly shopping around to save money and are wasting much less, shying away from big weekly shops in out-of-town stores to buy little and often in local convenience stores and buying more online.

At the same time, the two big German discounters and upmarket grocers Waitrose and Marks & Spencer are taking market share from the middle ground.

That has prompted Tesco, Asda, Sainsbury's and No. 4 Morrisons to all cut prices, squeezing industry profit margins. Tesco has warned on profits three times in two months, while Morrisons warned in March.

In June, Sainsbury's said it would also tackle the rise of the discounters by teaming up with Denmark's Dansk Supermarked to bring the Netto brand back to the UK. It said on Wednesday it was on track to open five Netto stores by the end of its 2014-15 year.

Coupe reckons Sainsbury's can set itself apart from rivals with a strategy that focuses on own-brand products, on the quality, provenance and ethical credentials of its food, and on expanding its convenience and online businesses.

Last month Morrisons reported a 7.6 percent slump in second quarter like-for-like sales. In August Asda posted a 0.5 percent rise for its second quarter.

Industry data published last week confirmed Asda as the best current performer of the "big four" UK grocers, with its year-on-year market share up 1 percentage point to 17.4 percent, while Sainsbury's slipped 0.4 points to 16.2 percent.

According to the Sainsbury's website, Qatar Holding notified the company on February 4, 2010 that it held 25.999 percent. Qatar Holding is a wholly owned subsidiary of Qatar Investment Authority and acts under QIA's direction and control.

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