Sainsbury’s slashes sales forecasts

Sainsbury's new boss Mike Coupe is expected to report the supermarket chain's third successive quarter of declining sales
Sainsbury's new boss Mike Coupe is expected to report the supermarket chain's third successive quarter of declining sales
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NEW Sainsbury’s boss Mike Coupe slashed sales forecasts today as he delivered his first trading update with a warning that the business is facing its most turbulent period in three decades amid a fierce price war.

The supermarket said like-for-like sales for the second quarter fell 2.8% and dropped by 2.1% over the first half - warning that this decrease was likely to be mirrored in the second half. It had previously pencilled in growth of 0.2%.

Sainsbury’s declined to reassure investors about the size of its dividend amid speculation that it will be cut, insisting that a strategic review to be announced next month would leave no stone unturned.

Shares fell as much as 4% and are at a six-year low. They have dropped by more than 40% since last November.

Mr Coupe insisted he was “100% confident” in the firm’s accounting practices relating to suppliers following a £250 million overstatement of profit expectations by rival Tesco which is being investigated by the City regulator.

Finance director John Rogers said there were already “very strong checks and balances” in the group but admitted it had “gone back just to look and check at what we have done historically”.

Analysts at Shore Capital slashed full-year profit expectations, which before the latest update were already expected to show the first fall following nearly a decade of increases under previous chief executive Justin King.

Mr Coupe said: “The reality is that the market has changed more rapidly in the last three to six months than I’ve seen in my 30 years in the industry.”

He said the business was facing a “perfect storm” of customers shopping around, food prices falling amid a supermarket price war and lower commodity prices, as well as a wider change in consumer habits.

“Customers have more choice today than they have ever had and they are shopping around more than they have ever done. There is top spin added to that by the fact that there is price deflation for the first time in a generation.”

Despite the end of the economic downturn, extra disposable income was being spent on eating out rather than grocery shopping, he added. The trend of more frequent, convenient shopping had accelerated, resulting in smaller basket sizes.

The major supermarkets, which also include Tesco, Asda and Morrisons, are engaged in a desperate battle to counter the challenge posed by discounters Aldi and Lidl as the pair gnaw at their market share.

Mr Coupe said: “The market remains dynamic and fiercely competitive.

“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.

“These conditions are likely to persist for the foreseeable future and we now expect our like-for-like sales in the second half of the year to be similar to the first half.”

Mr Coupe said the supermarket would provide a detailed strategic update at the time of its interim results announcement on November 12.

“We are making sure that we are looking at all aspects of our business. There will be no stone unturned.”

Mr Rogers declined to give any reassurance on whether shareholders would see a cut in the dividend as a result of the review.

He said: “We are not making any changes to our dividend policy today. We are in the midst of a strategic review where we’ll be looking at all aspects of our business and we do review our dividend on a continuous basis.”

Mr Coupe took over this summer following the departure of Mr King - hailed as the saviour of the business at the end of his decade in charge after notching up nine years of rising profits.

Mr King oversaw 36 quarters in a row of sales growth but his final months saw two successive periods of decline with the third now coming on Mr Coupe’s watch.

The latest second quarter figures cover the 16 weeks to September 27. The sales fall was not as bad as expected by some analysts, who had been forecasting a decline of 3.5%-4%.

Sainsbury’s has already responded to the tougher market by lowering prices on thousands of food lines.

It has switched focus for its Brand Match comparisons to Asda, which began cutting prices a year ago and is the only one of the big four grocers to hold market share over the period.

Meanwhile, Sainsbury’s this week cut petrol prices by up to 5p per litre.

It is also on course to open five new Netto stores by the end of the year as it seeks to go head-to-head with the discounters.

The chief executive said Sainsbury’s general merchandise and clothing businesses continued to deliver “strong growth”.

Sainsbury’s smaller convenience stores continued to grow strongly at around 17%, Mr Coupe added, reaching annualised sales of £2 billion.

Online groceries were hit by “a high level of competitor customer acquisition activity in the first quarter” with growth slowing to 7% compared to 10% year-on-year in the first quarter.

Shore Capital said: “Sainsbury’s has reported what amounts to a very poor trading update for the company when set against the sector and where the group has come from over recent years.”