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London - Sainsbury said there’s no end in sight to the falling grocery prices that have blighted the UK supermarket industry as a price war dented first-half profit.
Food price deflation will continue at least until the end of the company’s financial year in March, Chief Financial Officer John Rogers told reporters on Wednesday.
Asked about the prospect of a further decline in Sainsbury’s earnings, the executive said “it’s a difficult question to answer.”
The gloomy outlook tempered investor optimism arising from Sainsbury’s surprise announcement in September that full-year earnings would moderately surpass analysts’ estimates.
The company reported a smaller drop in first-half profit than analysts expected on Wednesday, though the shares fell as much as 5.6 percent.
“Visibility towards earnings is moderate,” Clive Black, an analyst with Shore Capital, said by email. “The sector is still fragile.”
The stock was down 4.7% at 259.8 pence as of 14:20, the steepest drop in the UK FTSE 100 Index.
Sainsbury’s underlying pretax profit fell 18% to £308m in the first half. As UK grocers scramble to halt market share losses to discounters Aldi and Lidl, the company has plowed £200m into lowering prices. Same-store sales have now declined for seven consecutive quarters.
To compensate for falling revenue, Sainsbury has been looking to cut costs and now expects to make £225m of savings by the end of its fiscal year, an increase of £25m on its previous forecast.
Rogers said that planned savings had been made quicker than expected and the company’s target of cutting costs by £500m within three years is under review.
“It’s a self-fulfilling prophecy that if you reduce promotional activity, efficiencies just keep coming through,” Bryan Roberts, an analyst with Kantar Retail, said by phone. “There are no signs of any panic buttons being hit.”
One area where Sainsbury isn’t looking to cut back is the quality of its own-brand products. The company said investment in the quality of 3 000 products contributed to a 1% increase in the volume of products sold in the first half.
“Food retail is not all about price, price, price,” Bruno Monteyne, an analyst with Sanford C. Bernstein, said by email.
“The evidence so far supports the view that Sainsbury’s differentiation provides protection from the value competitors.”
