Sainsbury's issues new profits warning
Sainsbury’s showed further evidence it was suffering at the hands of price-cutting rivals today as it warned that firs- half profits would slump by nearly two-thirds.
Shares slipped to a 15-month low after the embattled retailer gave its third warning on profits this year, although analysts said continued bid talk and the prospect of a trading review next week had prevented the stock falling further.
One analyst said today’s update reinforced his view that the UK’s third supermarket was being “killed” by rivals Tesco and Asda, who have been steadily eating into its market share in recent years.
Richard Ratner, of stockbroker Seymour Pierce, added: “As we have said before, Sainsbury is suffering ‘death by a thousand price cuts’.”
Next week, Sainsbury’s chief executive Justin King will attempt to draw a line under the company’s woes by outlining details of a strategic review.
The former food boss at Marks & Spencer is expected to cut the dividend and put the cash into lower prices and improving the quality of its food.
In today’s update, Sainsbury’s said it expected underlying profits for the six months to October 9 would be between £125m (€181.1,) and £135m (€195.6m), down from £366m (€530.4m) last year.
The market’s already revised expectations – following a profits warning in July – had been for a range of £150m (€217.4m) to £175m (€253.5m).
The figures emerged days after City watchdog the Financial Services Authority (FSA) said it was looking into how a Merrill Lynch analyst came to downgrade his forecasts in the wake of a conversation with the retailer.
The FSA said it was making inquiries into issues raised by Merrill Lynch’s report, which came after Sainsbury’s “helpfully pointed out” that its previous forecast of £177m (€256.4m) was too high.
A spokeswoman for Sainsbury’s said the decision to issue today’s statement had been made independently of the FSA.
The company added the strategic review on October 19 meant it was unable to give guidance on its full year, although Seymour Pierce downgraded its estimates for the full year from £365m (€528.6m) to £240m (€347.6m), compared with £616m (€892.2m) last year.
Broker Killik & Co said: “All in all, it feels as if the news will have to get worse and we prefer not to be owning the stock through this period.”
In the retailer’s last warning in July, Sainsbury’s said profit expectations for the financial year would be “significantly” lower, and that the majority of the impact would be in the first half.
Potential bidders for the company are believed to include US retailer Target.
Shares weakened 3p to 249p today, a fall of 1%.
