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Sainsbury's battles on

Despite an 18 per cent plunge in half-year pre-tax profits, J Sainsbury plans to battle the discounters head on this Christmas
November 11, 2015

Sainsbury's (SBRY) chief financial officer, John Rogers, says the supermarket chain is "on a journey". Clichés aside, the group is fighting hard to hang on to market share due to the deflationary pressures bearing down on the grocery sector. A 1.6 per cent drop in half-year like-for-like sales and an 18 per cent plunge in underlying pre-tax profits to £308m may not sound like progress. But these numbers beat market expectations and confirmed that the second quarter was far stronger than the first. Like-for-like sales for the July to September period were down 1.1 per cent compared with 2014, whereas in April to June they fell 2.1 per cent.

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Ahead of the all-important Christmas trading period, chief executive Mike Coupe said Sainsbury's was "ahead of where we expected to be". But he agreed it was always a retailer's intent to "win Christmas", and confirmed that Sainsbury's would take part in Black Friday at the end of November - unlike competitor Asda. But he cushioned that pledge by saying the promotional bonanza was "never a big deal" for the group, given the size of its food business compared with other divisions. If anything, he said, Christmas was an opportunity for Sainsbury's to edge out discounters like Aldi and Lidl as customers are likelier to trade up for the festive season.

Mr Coupe thinks there's "still work to be done". That means further investment in "targeted" price cuts, while maintaining a focus on profitability and market share. The rollout of the low-price Netto stores - part of a joint venture with Danish retail group Dansk Supermarked - will also ramp up, with nine more doors opening before the financial year-end, bringing the total number of Netto store launches for the year to 15.

The dividend was cut by a fifth, in line with the group's policy to return 30 per cent of the previous year's full-year dividend at the interim stage. Analysts at Shore Capital expect pre-tax profits of £575m for the year ended March 2016, giving EPS of 23p, compared with £681m and 26.4p in FY2015.

J SAINSBURY (SBRY)
ORD PRICE:276pMARKET VALUE:£5.31bn
TOUCH:275-276p12-MONTH HIGH:288pLOW: 221p
DIVIDEND YIELD:4.4%PE RATIO:12
NET ASSET VALUE:297pNET DEBT:30%

Half-year to 26 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201412.7-290-18.05.0
201512.433913.64.0
% change-2+217+176-20

Ex-div: 19 Nov

Payment: 4 Jan