Sainsburys(LSE: SBRY) unveiled its interim results today, and the figures were better than the market had been expecting. Indeed, the company reported that sales for the period rose 0.3% to 13.9bn. However, sales from stores open at least a year fell by 2.1%
Underlying pre-tax profit fell from 400m to 375m in the six months to September 27, although thanks to one-off charges, the group reported aloss before tax of 290m compared to pre-tax profit of 433m as reported in the year ago period.
Still, Sainsburys did announce this morning that the company was maintaining the interim dividend at 5p. But management did warn that the final dividend payout is likely to be lower, as second half profit is now expected to be lower than that of the first.
Whats more,the grocer is targeting500m of cost savings over the next three years. Capital expenditure is also being slashed to save cash. These cost savings will help the group fund 150m of price cuts.
Commenting on todays results,Mike Coupe, Chief Executive said:
Sainsburys is a great business. Our consistent outperformance of our main supermarket peers over the past five years is evidence of this. We are facing into a once-in-a-generation combination of cyclical and structural change in the industry, but I firmly believe that this strategy, building on our unique heritage and track record of success and delivered by the most experienced management team in retail, will focus and energise our business to the benefit of customers, colleagues and shareholders alike.
Despite todays relativity upbeat trading statement from Sainsburys, the companys outlook for the UK grocery market is extremely concerning.
For example, as covered above, Sainsburys management believes that group profit during the second half of the year, will come in considerably lower than that reported during the first half. Moreover, the grocer now believes that supermarket like-for-like sales across the sector will be negative for the next few years.
So, it would appear as if the sectors really going to suffer from now until the end of the decade. Unfortunately, its questionable whether or not Sainsburys will be able to compete effectively in this tough retail environment.
That being said, the grocers recent join venture withScandinavian retailer Dansk Supermarked, to bring Danish discounter Netto back to the UK should give Sainsburys an edge over its peers.
However, withTesco,Morrisonsand now Sainsburys all slashing costs to compete effectively with the discounters, things are going to get very messy within the UK grocery sector. Sainsburys reported loss before tax announced today could be a sign of things to come for the retailer.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.