J Sainsbury PLC on Thursday vowed to defend its market share as it forecast profits will flatline in the current financial year.
The London-based food retailer said it expects to deliver Retail underlying operating profit of around £1 billion in the current financial year, compared with £1.06 billion consensus, and Retail free cash flow of more than £500 million.
The forecast came as the UK’s second largest grocer said retail underlying operating profit rose 7.2% to £1.04 billion in the financial year to March 1 from £966 million, and above the £1.03 billion company-compiled consensus.
The UK grocery sector is facing a price war, after a pledge by Asda to cut prices to gain market share.
Last week, Tesco PLC lowered its financial outlook, citing a ‘further increase in the competitive intensity of the UK market’ in the past few months.
That update pushed shares in both Tesco and Sainsbury lower. On Thursday morning, Sainsbury recouped some of those losses, rising 2.4% to 254.00 pence in London. They are down 7.2% year-to-date.
Tesco shares were up 1.0% to 348.96p.
Sainsbury Chief Executive Simon Roberts said the supermarket chain is ‘committed, above all else, to sustaining the strong competitive position’.
‘We expect to continue to grow grocery volumes ahead of the market and we have started the year with good trading momentum across all our brands,’ Roberts added.
Pretax profit jumped 39% to £384 million in the financial year to March 1 from £277 million a year prior.
Underlying pretax profit rose 8.6% to £761 million from £701 million, above the £751 million company compiled consensus.
Underlying group sales rose 1.3% to £33.14 billion from £32.72 billion a year prior.
Retail sales increased 3.1% to £31.56 billion from £30.62 billion, in line with company compiled consensus.
In the fourth quarter, the firm said Sainsbury sales were up 4.1%, picking up speed from 3.7% in the third quarter.
Argos sales climbed 1.9%, reflecting continued improvement in online traffic trend. For Argos, Sainsbury’s general merchandise arm, it was the only quarterly increase in the financial year.
For the full-year, Sainsbury sales rose 4.2%, with grocery sales up 4.5% while general merchandise and clothing sales were flat. Argos sales declined 2.7%.
Sainsbury said customers responded positively to the introduction of Nectar Prices, while it attracted and retained more ‘big basket primary customers’.
General merchandise and clothing sales at Sainsbury’s were in line with last year, with higher clothing sales reflecting range and availability improvements and offsetting lower general merchandise sales.
Sales in supermarkets were up 4%, while grocery online sales increased 7%.
Retail free cash flow of £531 million met guidance to deliver at least £500 million.
Sainsbury will pay a final dividend of 9.7 pence per share, up from 9.2p a year ago, taking the total payout for the financial year to 13.6p, up 3.8% from 13.1p.
In addition, Sainsbury plans to buy back at least £200 million worth of shares and expects to return £250 million via special dividend in the second half of the financial year. The special dividend represents the proceeds from the sale of Sainsbury’s Bank.
The special dividend will be accompanied by a proposed share consolidation.
Sainsbury last year announced the sale of the personal loan, credit card and retail deposit portfolios of Sainsbury’s Bank to NatWest Group PLC.
The company expects to grow total food space in Sainsbury’s by nearly 3% in the current financial year, reflecting 15 new stores and the rebalancing of existing store space.
CEO Roberts said: ‘More people are choosing Sainsbury’s for their main grocery shop as a result, delivering our highest market share gains in more than a decade.’
‘We are committed, above all else, to sustaining the strong competitive position we have built - consistently giving customers the great value they have come to expect from Sainsbury’s - and we expect to continue to outperform the market,’ he added.
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