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Sainsbury’s (SBRY) has posted a small 0.2% drop in second quarter like-for-like sales (ex fuel), while announcing it plans to axe as many as 125 stores across its supermarkets, convenience stores and Argos outlets.
The 0.2% second quarter sales dip represents an improved performance from the 1.6% sales drop in the first quarter.
Sainsbury’s said it had seen an improvement to trading relative to the market, particularly in grocery where sales were up 0.6% in the quarter.
Second quarter total retail sales up 0.1% (ex fuel), with like-for-like sales down 0.2% per cent (ex fuel)
General merchandise sales declined by 2% in the period, but clothing sales were up by 3.3%.
Meanwhile, Sainsbury’s is hosting a capital markets day today to update shareholders on its strategy.
It said the key points will be: investing in its customer offer; continued improvement in grocery value; fit for future store operating models; and confidence about the ability to fund this investment.
Sainsbury’s will say it has a “unique opportunity” to structurally reduced costs by £500m over five years as it brings its business together and finds other cost savings to cover the impact of inflation.
It said a store estate review will result in ten new supermarkets opening and 10-15 closures; 80 new Argos in Sainsbury’s and 60-70 Argos closures; and 110 new convenience stores and 30-40 closures.
Sainsbury’s said it expects store closures to deliver an ongoing net operating profit benefit of £20m per year, though one-off costs related to the closures and impairments will be £230m to £270m, of which the cash cost will be £30m to £40m.
Additionally, Sainsbury’s will launch a five year plan for its financial services arm, including an immediate stop to new mortgage sales.
It will also cease to make any more capital injections into Sainsbury’s Bank after the £35m in 2019/20, reduce its cost/income ratio to 50% and look to double its underlying profits and return of capital to return cash to the growth.
A new longer-term asset-backed pension plan has also been agreed “providing greater security to the scheme”, reducing cash contributions reduced immediately by £50m a year and cutting its valuatiokn deficit down to £538m from £1.06bn in 2015
CEO Mike Coupe commented: “Sales momentum was stronger in all areas and we further improved our performance relative to our competitors, particularly in Grocery. We have focused on reducing prices on every day food and grocery products and expanding our range of value brands, which have been very popular with customers. At the same time, we are investing significantly in our supermarkets, driving consistent improvements to service and availability.
“Argos continued to grow market share in key categories1, but sales were impacted by reduced promotional activity and the timing of new product releases in gaming and toys. Clothing sales were boosted by clearance activity and strong online growth and Tu continued to grow market share1. Financial Services sales were in line with expectations.”
Sainsbury’s said first half underlying profit before tax will reduce by £50m year on year due to the combined impacts of the phasing of cost savings, unseasonal weather against a strong comparative period last year and higher marketing costs.
However, in the second half we expect to benefit from the annualisation of last year’s staff wage increase and a normalisation of marketing costs and weather comparatives. Therefore, while retail markets remain highly competitive and the consumer outlook remains uncertain, the supermarket said it remains on track to deliver full year 2019/20 underlying profit before tax in line with consensus expectations.
Sainsbury’s shares are up 2.9% in early trading to 219.1p.
Morning update
PZ Cussons (PZC) has issued a trading statement ahead of its AGM this morning, detailing improvements in developed markets but continued weakness in Africa.
PZC said there was “some encouraging progress in our core brands” in Europe and the Americas. In the US our Beauty category “continued to perform well”, while UK personal care brands were impacted by consumer uncertainty and heavy promotional activity, leading to lower revenue.
Asia Pacific revenue declined versus the prior year. Continued good growth in Indonesia was offset by increased promotional spend in Australia across all categories.
Africa revenue continued to decline albeit at a slower rate compared to last year. Growth in the Electricals category and selected premium brands was offset by the decline of value brands, primarily in home care.
“Key markets continue to be impacted by consumer fragility, with the Nigerian economy remaining depressed, uncertainty in the UK and highly competitive markets in Australia,” the company said.
The company said market conditions will “remain challenging across our key geographies for the balance of the first half of the year”.
Improvement is anticipated in the second half of the year, as planned marketing activities behind our focus brands and overhead reduction programmes take effect. The strategic refocusing and simplification of our activities will continue.
“We expect the full year results to be in line with prior year, adjusted for the impact of disposals, but dependent on no further worsening in our key markets, specifically the UK and Nigeria,” it stated.
PZ Cussons shares are down 1.2% to 210p so far today.
On the markets this morning, the FTSE 100 has dropped a further 0.6% to 7,247.7pts.
Early fallers include FeverTree (FEVR), down 1.7% to 2,370p, Greggs (GRG), down 1.5% to 2000p and McBride (MCB), down 1.4% to 49p.
Other the Sainsbury’s, risers so far include Imperial Brands (IMB), up 1.1% to 2,043p, AG Barr (BAG), up 1% to 612p and Morrisons (MRW), up 1% to 200.9p.
Yesterday in the City
The FTSE 100 sank 0.5% to 7,291.4pts on another dramatic day in the UK as Supreme Court judges found the prorogation of Parliament to be unlawful.
The pound rose from $1.2419 to close to $1.25 on news of the judgement, before settling slightly to close at $1.2465.
The rising pound helped depress share prices across a number of FTSE 100 consumer firms, including Imperial Brands (IMB), down 3.5% to 2020p and British American Tobacco (BATS), down 1.8% to 2,832p.
UK retailers also fell yesterday, with Sainsbury’s (SBRY) down 1.6% to 213p, Marks & Spencer (MKS), down 1.6% to 186.5p and Morrisons (MRW) down 1.6% to 199p.
Other fallers included Hilton Food Group (HFG), down 2.1% to 973p, Premier Foods (PFD), down 1.6% to 31.8p and Tate & Lyle (TATE), down 1.4% to 726.4p.
Risers yesterday included PureCircle (PURE), which continued its recent recovery by rising 14% back to 197.6p.
AG Barr (BAG) and Hotel Chocolat (HOTC) were both climbers despite reporting markedly different trading periods yesterday. Irn-Bru maker AG Barr rose 3.4% to 606p despite a “disappointing” first half following an earlier profits warning, while strong UK retail growth over the year helped Hotel Chocolat rise 3% to 381p yesterday.
Other risers included Glanbia (GLB), up 2./2% to €11.42, Ocado (OCDO), up 2.1% to 1,340, McColl’s (MCLS), up 2.1% to 48p, FeverTree (FEVR), up 2% to 2,410, Kerry Group (KYGA), up 1.8% to €106.90, SSP Group (SSPG), up 1.8% to 676p and before today’s trading update PZ Cussons, up 1.7% to 212.5p.
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