Wednesday, 6 May 2015

Sainsbury Final Results

As we all know, it has not been a good year for supermarkets - for my sins in a previous life, I hold both Tesco and Sainsbury in my income portfolio.

They have today announced results for the full year to March 2015 (link via Investegate). .

Profit before tax is down less than forecast -14.7%% to £681m (2013/14: £798m) whist basic earnings per share is down -19.5% to 26.4p (2012/13: 32.8p) . This decline was greater than the decline in underlying profit, due to the impact of a higher underlying tax rate and the effect of additional shares issued during the year.

This fall in profits will be the first annual loss for a decade.

The charge to one-off items of £713 million (2013/14: £68 million credit) includes:

  • a non-cash impairment and onerous contract charge of £628 million; 
  • costs of £53 million in relation to transitioning Sainsbury’s Bank to a new, more flexible banking platform; 
  • £17 million pension compensation payments made to employees as a result of the closure of Sainsbury’s defined benefit pension scheme to future accrual; and 
  • internal restructuring costs of £15 million

New CEO Mike Coupe said, "The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share. However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth".


At the half way point last November, the interim dividend was maintained at 5.0p. However, anticipating a decline in profits, a decision was announced to target dividend cover at 2x earnings. The final dividend will be 8.2p, making a total of 13.2p for the full year, a reduction of 23.7% on the 17.3p paid last year. This has brought the payout back to the same level as 2009! Not fantastic for income seekers but more or less what I was expecting and much better than the zero final dividend announced by Tesco.

The results have so far received a mixed reaction and at the time of posting the share price is trading around 2% lower at 269p. This puts the shares on a current yield of 4.9%. Forecast earnings for the coming two years are ~22p which will reduce the dividend to 11.00p.

year to date SBRY -v- FTSE 100

Last year I topped up my holding at 260p - my breakeven figure is 300p.  I am hoping the recent turbulence is starting to settle and the new management can make some progress to turn things around and improve profitability and earnings. I suspect it may be a long process and I would not be surprised to see some consolidations in this competitive sector of the market in the next year or two.


  1. The supermarket sector is really in a period of change. I think you're right that we may see a spate of consolidation in the sector. However, until there is some clarity on whether there is a way out of the funk they are in it may not come for a while!

    I hold Tesco (and will continue to do so for now). But Sainsbury's does look rather more robust at the moment. Their strategy seems sounder. The dividend choice is good I think. Like Tesco, they need to be responsible about how much they pay out. Also transparency on the likely movement of the dividend is also good. Hopefully should stop the sudden shocks when/if it continues to drop in the future! On the plus side, you still have quite a healthy dividend coming your way!

    Good luck with it! I think we will still be in for a bumpy ride going forward with the supermarkets!

  2. Aldi have setup in my local area and I took my first trip there last weekend. My wife and I certainly fit in the food snob bracket, but between Aldi and the local food market, we are never going to any of the major chains again. Peter Lynch said don't invest in a declining industry until there is proof that it has turned around. I see no turn around for these guys unless wages take off (not going to happen).

  3. I find this supermarket war fascinating, probably because they're so visible and familiar to us all. I want a time machine so that I can skip forwards 10 years and see how it all worked out. Will a sustained economic recovery lead to people returning to the traditional supermarkets and spell the end of growth for the discounters, or will these recent changes in the market become permanent?

    I hold Tesco and Morrisons, although I wouldn't buy any of them now (including Sainsbury) as their return on capital is wafer thin and debts levels too high for my liking.

  4. I had debated about investing in supermarkets a year ago and thankfully I did not. Recently I looked at Morrisons but decided against investing in them. Instead I went for National Grid as I though the dividends might be more stable. I can see no way back for some of these supermarkets so I have no plans to invest in the future, unless they get rid of their debt.