UK's Sainsbury's Lays Out New Plan As Trading Improves
British supermarket group Sainsbury's detailed a new plan to cut costs, speed up debt reduction and shake up its store estate and financial services division as it reported improved trading in its latest quarter.
After the failure of its attempt to take over Asda for £7.3 billion and with Sainsbury's shares down 33% over the last year, chief executive Mike Coupe is under pressure to show the group can prosper on its own.
Ahead of a capital markets day event for investors, Sainsbury's said it planned to reduce costs by about £500 million over five years as its brings its businesses together, in addition to ongoing cost savings to cover the impact of cost inflation.
The group increased its three year net debt reduction target to at least £750 million, from £600 million previously, forecasting a reduction of at least £300 million in the current 2019-20 year.
Store Estate Review
It said a review of its store estate will result in about 10 new supermarkets and 10-15 closures; about 80 new Argos outlets in Sainsbury's stores and 60-70 Argos closures, with 110 new convenience stores and 30-40 closures.
It said the closures would deliver a profit benefit of about 20 million pounds per year, while the one-off cost of closures and impairments would be £230 - £270 million.
Sainsbury's also has a new five-year plan for its financial services division. It will immediately stop new mortgage sales and will not inject any more capital after £35 million in 2019-20. It plans to double the division's underlying pretax profit.
The group said its like-for-like sales, excluding fuel, fell 0.2% in the 12 weeks to 21 September, its fiscal second quarter, having fallen 1.6% in the first quarter.
"Sales momentum was stronger in all areas and we further improved our performance relative to our competitors, particularly in grocery," said Coupe.
Sainsbury's forecast 2019-20 underlying pretax profit in line with analysts' consensus expectations.