London - J Sainsbury will take a £550 million (R6.3 billion) hit to its profits and will halve the dividend this year as it counts the cost of past mistakes and fights for survival amid brutal price competition.
In a wide-ranging business revamp, Britain's third-biggest supermarket chain said yesterday that it would axe 750 head office jobs, hire 3 000 front-line staff and slash prices to compete with market leaders Tesco and Wal-Mart's Asda.
But the one-off profit charge - most of which is write-offs on its huge, white elephant investments in information technology systems and the supply chain - will mean that Sainsbury will take a swingeing loss this year before taking into account a £275 million profit on the sale of its US Shaw's business.
Sainsbury, which has already warned on profits three times this year, said second-half underlying profit would "not be significantly different" from the £125 million to £135 million range forecast for the first half.
In effect, the company looks set to break even if it performs at the top of its own underlying forecast range.
"Roughly at the retained profit level there won't be any material profit or loss," said finance director Roger Matthews.
Twelve stores will be closed, and 131 will be refurbished.
In addition, the roll-out of petrol station convenience outlets will be suspended as part of a business review that was given a warm reception on the stock market. Sainsbury shares, which have underperformed rival UK food retailers by 23 percent this year, had gained 3.8 percent by early afternoon n London.
"The market is relieved there's nothing worse in the statement," said Colin Morton of Rensburg Fund Managers.
"It's difficult to get a sales-led recovery when you're up against the likes of Tesco, Wal-Mart's Asda and Morrison. It's a case of watch this space and see if they can deliver," he said.
In all, Sainsbury hopes to boost sales by £2.5 billion over the coming three years, investing in its supply chain to win back disenchanted customers.
The company will use cost savings on the buying side to cut prices by up to 1.5 percent in recognition of the increased price consciousness of the British consumer.
Once the UK market leader, Sainsbury was overtaken first by Tesco and then Asda, which capitalised on their "every day low price" strategy as the deposed market leader clung on to an increasingly tarnished upmarket image.
Chief executive Justin King said that although his company planned to halve its full-year dividend to an estimated 7.8p a share, the Sainsbury family, which owns about 35 percent of the shares, were on side.
"I'm very confident that our position, as it is with all shareholders who have a long-term view of the company, is that they'll be supportive of what we've laid out today," King said.
King, who in March became Sainsbury's fourth chief executive in 10 years, will be aiming to keep the founding family on side as a defence against a hostile takeover.
But Iain McDonald of Numis Securities said everything rested on the success of this review.
"If King's plans do not begin to work quickly, he will be under severe pressure from the family, and the family may be receptive to any bid approaches," McDonald said.
King said Sainsbury would now invest at least £400 million to reverse customer perceptions of poor service. It would cut buying costs by a similar amount, he said, but the company was not considering the sale and leaseback of its property for the time being.
Unlike Tesco and Wal-Mart, Sainsbury will not be pushing heavily into non-food lines - probably on the realisation that it will never achieve sufficient volumes to compete on price.
"Ranges will be complementary to the grocery shopping trip rather than being a specific destination ... The core range will be everyday weekly items such as cards, wrapping paper, music and DVDs," the company said.
Clothing and home ranges would still be carried in the larger stores, it added.
Sainsbury said like-for-like sales rose 1.8 percent in 16 weeks to October 9, but fell 1.1 percent, excluding petrol sales. - Reuters