As Tesco continues to deal with its mega loss, Sainsbury’s posts its first annual loss for ten years.
Sainsbury’s, the UK’s third-largest supermarket chain, just announced its first full-year loss in a decade. It’s a sign that the competition between British supermarkets is increasing and the news has sent Sainsbury’s share price tumbling.
Following an impressive nine-year streak of sales growth, Sainsbury’s reported a pre-tax loss of £72 million in the year to 14 March 2015. The dismal figures disheartened investors and sent the supermarket’s shares around four per cent lower by midday.
However, much like Tesco’s recent record loss, the results were pressured by a number of one-off costs.
Decline in property value
A decline in the value of property was the major contributor to Sainsbury’s bottom-line loss. However - excluding one-off costs - the underlying pre-tax profits fell by 14.7 per cent to £681 million in the year to March, down from £798 million in the year before.
“The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share,” said Mike Coupe, chief executive of Sainsbury’s.
“However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth,” he added.
Despite the loss, Sainsbury’s is upbeat about the future and are intent at delivering operating cost savings and reducing expenditure to maintain their balance sheet strength.
The grocer’s results announcement included plans to deliver total operating cost savings of £500 million over the next three years. Furthermore, it intends to reduce core retail capital expenditure to between £500 million and £550 million per annum in each of the next three years, from the £947 million reported in 2014/15.
Sainsbury’s is having to adapt to a far different market environment from when it recorded nine-consecutive years of sales growth. Competition in the supermarket sector is fierce and the rising popularity of cheaper stores such as Lidl and Aldi is creating a price war between the major chains.
Plans to spend £150 million to further reduce its prices could help drive footfall to its stores, thus raising the property values of its premises. However, these measures may not be enough to combat the evolution in shopping habits among the UK’s public.
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