Sainsbury Sales Fall After Cost Cuts to Counter Discounters

(Bloomberg) --

J Sainsbury Plc is still struggling to regain its footing after the U.K. supermarket operator’s failed effort to buy Walmart Inc.’s Asda, with sales declining and profits falling short of analysts’ expectations.

• The U.K. supermarket operator’s first-half sales fell 1% on a comparable basis excluding fuel, while adjusted pretax profit of 238 million pounds ($306 million) was 5 million pounds short of estimates.

Key Insights

• Sainsbury put a brave face on a largely downbeat report, saying price cuts are resonating with consumers who have been leaving established grocers for discounters Lidl and Aldi. The company had already cautioned that first-half earnings were likely to be hit by the phasing of cost savings, unseasonal weather and higher marketing costs.
• Sainsbury echoed other U.K. retailers in saying the consumer outlook is uncertain, but it said it expects profit in the second half to benefit from more favorable comparisons.
• While Chief Executive Officer Mike Coupe’s cost-cutting plans outlined in September were well-received by investors, the latest results raise new questions about whether management can deliver on boosting earnings.

Market Reaction

• The shares were little changed early Thursday in London. They've fallen about 22% this year.

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To contact the reporter on this story: Rebecca Smith in London at rsmith599@bloomberg.net

To contact the editors responsible for this story: Sunil Kesur at skesur@bloomberg.net, Eric Pfanner

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