The woes of the UK’s supermarket sector will be highlighted this week when Sainsbury’s full-year results are expected to reflect the impact of competition from rivals and the falling value of its store network.
Sainsbury’s dived to a pretax loss of £290m in the first half and is expected to post a 17% fall in profits to £660m on Wednesday. According to some estimates, property writedowns could push Sainsbury’s into a statutory loss, which would be its first annual loss in 10 years.
Like other grocers, Sainsbury’s has had to write down the value of its properties and suffered from the supermarket price war, fuelled by the popularity of the discount chains and lower global commodity prices. It took a £665m charge in the first half mainly related to writedowns on 40 existing stores and on 40 planned stores. It spent £23m on transition costs in relation to Sainsbury’s Bank after taking full ownership of its joint venture with Lloyds Banking Group, a figure that it said would rise to £50m for the full year.
Sainsbury’s boss Mike Coupe warned in March that food prices were likely to keep falling until at least the end of this year, as the company reported its fifth consecutive quarter of declining sales. The grocer has already spent half the £150m it set aside in November to fund price cuts over 12 months.
Brewin Dolphin analyst Nicla Di Palma said: “As with Tesco, management is likely to announce that 2015/16 will not bring any improvement in profitability, although we do not expect a detailed outlook.”
Analysts at Jefferies also expect another challenging year and could be hit by Tesco’s attempts at revival. Tesco reported a £6.4bn loss last month – the biggest on the high street – after writing down the value of its property. But Tesco is thought to have invested about £200m into cutting prices and improving service in the past year. “We remain concerned that improving execution at Tesco may hit Sainsbury’s harder than most, given higher local store overlaps,” the Jefferies analysts said.
Sainsbury’s is cutting 800 jobs at its stores in an effort to save £500m over the next three years, following 500 head office job cuts in January. Rivals Morrisons, Asda and Tesco are also cutting thousands of jobs.
When he presents the results, Coupe is likely to face questions over the two-year jail sentence for embezzlement handed down to him in Egypt last week. The claims were rejected as groundless by the company. They relate to the supermarket’s attempt to open in Egypt in 1999 by buying 80% of Egyptian Distribution Group, known as Edge. After 18 months, Sainsbury’s withdrew and sold its stake back to Edge’s founder, Amr el-Nasharty, at a cost of £111m, according to the Times .
The legal dispute is likely to drag on. Coupe attended a court hearing in Giza on 26 April to try to overturn the conviction, but the hearing was adjourned to Sunday 3 May. That hearing, which was not attended by Coupe, was also adjourned, for a fortnight.
