Sainsbury’s Chief Executive Mike Coupe today pledged to remain with the retailer as he outlined plans to fight back after failing to secure a merger with Asda.
Details of his plans to restore sales growth were revealed alongside the group’s results for the year to 9 March 2019. These showed that statutory pre-tax profits had fallen 41.6% to £239m, impacted by a series of one-off charges totalling £396m. These included provisions for pension changes and the restructuring of Sainsbury’s store operations, as well as a £46m charge related to the Asda deal, which was blocked by the CMA last week.
However, underlying pre-tax profit did rise a better-than-expected 7.8% to £635m, helped by “solid” food performance and £160m of synergies from its integration of Argos.
Group like-for-like sales, including Argos, edged down 0.2% over the year. They slipped 0.9% in the fourth quarter, a slight easing from the 1.1% fall the previous period. Sainsbury’s blamed the decline on its general merchandise and clothing offer.
The group no longer breaks out like-for-like performance for its Sainsbury’s and Argos chains. It revealed that total grocery sales had increased by 0.6%, with price inflation and improved sales mix, offset by a decline in volumes. General merchandise sales were flat and clothing declined.
Total sales in its Sainsbury’s convenience and online operations grew 3.7% and 6.9% respectively, whilst supermarket sales edged up 1%, benefiting from the addition of Argos stores inside these stores.
“Retail markets are highly competitive and very promotional and the consumer outlook continues to be uncertain,” Sainsbury’s stated.
Analysts have speculated that Sainsbury’s new chairman Martin Scicluna may look to replace Coupe after he failed to pull off the Asda deal that he masterminded. Asked today if he was asked to quit after the CMA blocked the deal, Coupe told the BBC: “You will be talking to me again I’m sure. I’m sticking to the company. I’m very proud of the organisation I run.
“We draw a line under the past. The regulators blocked the deal. We think our business is adapting to the changing world of retail.”
In an effort to fight back against its better performing rivals and counter criticism of its store standards, Coupe outlined that the company would increase and accelerate investment in its core business, with improvements to 400 supermarkets this year, while also ramping up spending on online technology. He also made a new commitment to reduce net debt by at least £600m over the next three years.
Meanwhile, having promised to cut prices if it had been allowed to merge with Asda, Coupe stated today that Sainsbury’s needed to become more competitive in its prices for staple foods by making the business more efficient.
“Our prices in core commodity areas will come down over a period of time, not overnight because there’s lots of work to be done to make sure we can afford to do that but we will seek to reduce prices throughout our organisation,” he said.
Coupe concluded: “I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change.”
Following the release of the results, Sainsbury’s share price rose over 5% having dropped nearly 30% in the last six months.
Leading retail analyst Nick Bubb commented: “The City was nervous that today’s finals might bring bad news and profit downgrades, with the weakness of the business exposed after the failure of its Asda merger plan. But the embattled CEO Mike Coupe has come out fighting, delivering better than expected underlying full-year profit.”
John Moore, senior investment manager at Brewin Dolphin, added: “If it hadn’t been for the collapse of the Asda merger, we might have been talking about a strong set of financial figures from Sainsbury’s today. As it is, much of the focus will be on what could have been and where the business goes from here; particularly with reference to its UK supermarket estate.
“Nevertheless, these are a robust set of financials from Sainsbury’s in the face of a highly competitive UK retail sector. The business may have lost market share, but it is still performing at a good level, aided by the integration and enhanced offering of Argos – the Asda transaction would have offered the potential to push this to another level. While there is a commitment to increase and accelerate investment in the business from management, investors will be waiting for more concrete plans in the months ahead to see what Sainsbury’s next step will be.”
Meanwhile, Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “It’s a bit premature to pop any champagne corks just yet. Perhaps most concerning is that sales growth is flatlining, at best. In some bits of the business, notably clothing and general merchandise, sales are in retreat.
“Of course, this all contrasts with a resurgent Tesco, which makes Sainsbury’s sales performance look pallid by comparison.”
NAM Implications:
- Looks like ‘wait & see’ for at least a few months.
- Meanwhile, an opportunity for suppliers to help Mr Coupe implement and achieve goals within a Plan B framework..
- …potentially more productive than ‘waiting & seeing’…
