LONDON: British grocer Sainsbury’s cut its annual sales forecast and said it would review its dividend as part of a wider examination of the business, adding to the turmoil in a sector reeling from Tesco’s accounting scandal.
The announcements, which followed a slump in quarterly sales, pushed the retailer’s shares to a six-year low and also dragged down sector peers, already under pressure from the Tesco debacle which has spooked the whole industry.
Up until the fourth quarter of Sainsbury’s 2013-14 year, it had been outperforming rivals, reporting nine unbroken years of sales growth. It has since posted three straight quarters of falling sales as discounters won market share from the established grocers and consumers shopped around to save money.
Chief Executive Mike Coupe, who succeeded Justin King in July, told reporters market conditions were the most challenging he had experienced in his 30-year career in retail.
“Customers have more choice today than they’ve ever had and they’re shopping around more than they have ever done,” he said. “There’s topspin added to that by virtue of the fact that there is price deflation in the market for the first time in a generation.”
Coupe said his strategic review would look at all aspects of the business. “There will be no stone unturned,” he said.
Sainsbury’s said it now expected second-half sales at stores open over a year to fall by a similar amount to the 2.1 percent fall recorded in the first half. The firm had previously forecast a small increase for the year as a whole.
Shares in the retailer, which trails market leader Tesco and is battling with Wal-Mart Stores’ Asda to be the UK’s No. 2 grocer, fell up to 6.6 percent to a six-year low after it said it would assess its dividend payout as part of the wider review to be detailed by Coupe along with first-half results on November 12.
“If we are doing a full scale strategic review ... you’d expect the dividend to be part of that full-scale review,” said Chief Financial Officer John Rogers.
Shares in Morrisons, the UK’s No. 4 grocer, fell up to seven percent, while Tesco fell up to 4.4 percent. Sentiment in Tesco was also dented by news Britain’s financial watchdog has begun a full investigation into its accounting scandal.
Tesco said in August it was slashing its dividend payout.
The update from Sainsbury’s combined with the fresh investigation at Tesco wiped £1.2bn ($1.9bn) off the market value of the two retailers plus rival Morrisons.
Shore Capital analyst Clive Black downgraded his full-year dividend payout expectation to 11.25 pence, a 35 percent cut to the 17.3 pence a share Sainsbury’s paid out for 2013-14.
Black cut his pretax profit forecast for 2014-15 by 17 percent to £645m and said the firm was also vulnerable to asset writedowns. Though he has a “hold” stance on the stock, he sees the sector as “largely un-investible”.
A possible dividend cut is unlikely to go down well with Sainsbury’s investors. Some 26 percent of its equity is owned by the Qatar Investment Authority, while the different parts of the Sainsbury family own around 11 percent.
“There’s a slightly worrying undercurrent where people think it’s quite macho to go out and slash dividends but dividends are important to lots of people in the market,” one institutional investor in Sainsbury’s said.
Reuters
