A £628m non-cash write down on the value of Sainsbury's (SBRY) property portfolio pushed the supermarket into the red by £72m in the year to 14 March.
But strip out these charges, as well as £125m of other one-offs costs, and pre-tax profit actually totalled £681m, down 15 per cent on last year and better than the £659m expected by analysts. Like-for-like retail sales also beat consensus forecasts, falling 1.9 per cent against expectations of a 2.1 per cent decline.
Chief executive Mike Coupe put the good performance down to Sainsbury's new strategy to invest in price cuts, customer service and product quality. "That differentiates us and, long-term, will help us outperform in this sector," he said.
Already, the initiatives appear to be paying off. Volumes grew, particularly on re-priced items. It's worth noting that Sainsbury's trimmed just £50m from prices last year, but plans to slash a further £150m this year.
But lower prices plus higher volumes equals higher costs. Accordingly, the retail operating margin fell by 58 basis points to 3.07 per cent, although this was the best performance among the three listed supermarkets. Finance director John Rogers said the margin could dip slightly this year, but in the medium-term should stabilise around 3 per cent across the industry.
And while supermarket sales fell 2 per cent overall, there were pockets of good growth. General merchandise and clothing sales were 9 per cent higher, while Taste the Difference products dished up 5 per cent growth. Revenue from convenience stores rose 16 per cent and Sainsbury's bank delivered a 17 per cent rise in profit to £62m.
Cost savings totalled £140m, with a further £500m earmarked for the next three years. Capital spending is set to halve and Sainsbury plans to sweat existing assets by turning over excess store space to third-parties, including retailers Argos and Timpsons and GP surgeries.
Mr Coupe warned that the market would remain extremely challenging as deflation is set to persist for at least another year. But he added that Sainsbury had the financial muscle to cut prices further, if necessary.
The consensus underlying EPS forecast for this year is 21p, down from 25p last year.
| J SAINSBURY (SBRY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 267p | MARKET VALUE: | £ 5.1bn | |
| TOUCH: | 266-267p | 12-MONTH HIGH: | 349p | LOW: 221p |
| DIVIDEND YIELD: | 4.9% | PE RATIO: | NA | |
| NET ASSET VALUE: | 288p | NET DEBT: | 42% | |
| Year to 14 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 21.1 | 827 | 34.4 | 15.1 |
| 2012 | 22.3 | 799 | 32.0 | 16.1 |
| 2013 | 23.3 | 772 | 32.0 | 16.7 |
| 2014 | 23.9 | 898 | 37.7 | 17.3 |
| 2015 | 23.8 | -72 | -8.7 | 13.2 |
| % change | -1 | - | - | -24 |
Ex-div:14 May Payment:10 Jul | ||||
