UK: Sainsbury's fears consumer hangover after Christmas splurge

Coming storm: Uncertainty over the UK election and Brexit could hit sales, warned the retailer's chief executive.

    Sainsbury's will have to weather the perfect storm as consumer uncertainty over the UK election meets uncertainty over Brexit [Toby Melville/Reuters]
    Sainsbury's will have to weather the perfect storm as consumer uncertainty over the UK election meets uncertainty over Brexit [Toby Melville/Reuters]

    British supermarket group Sainsbury's expects to trade well in the run-up to Christmas but fears a consumer hangover in the new year if Brexit is unresolved, its boss said on Thursday.

    Prime Minister Boris Johnson called a snap December 12 election in a bid to break the Brexit deadlock.

    The United Kingdom is currently due to leave the European Union on January 31, though that could change depending on the result of the election.

    "All our experience will say that people will celebrate Christmas, they always do. We would expect that we'll do well over Christmas," Sainsbury's CEO Mike Coupe told reporters.

    "But depending on the outcome of the election and how quickly we get the whole Brexit situation resolved, there may well be a hangover into the new calendar year," he said.

    Sainsbury's reported a 15 percent fall in first-half profit, blaming the combined impact of the phasing of cost savings, higher marketing costs and tough weather comparatives with last year which impacted on sales.

    The 150-year-old group did, however, forecast that the second-half profits would benefit from the annualisation of last year's staff wage increase and normalisation of marketing costs and weather comparatives.

    It said it was on track to make analysts' profit consensus for the full 2019-20 year of 584 million pounds ($751.2m), down from 601 million pounds ($770m) in 2018-19.

    The first-half profit fall comes as Sainsbury's tries to rebuild confidence in its strategy following a botched attempt to take over rival Asda. UK's competition regulator blocked the agreed 7.3 billion pounds ($9.4bn) deal in April and Sainsbury's shares have fallen 34 percent over the last year.

    In September, Coupe put cost-cutting and paying off debt at the heart of a new plan designed to show Sainsbury's can prosper on its own.

    The group made an underlying pretax profit of 238 million pounds ($305m) in the 28 weeks to September 21 - ahead of analysts' average forecast of 232 million pounds ($297m) but down from 279 million pounds ($358m) made in the same period last year. Group sales fell 0.2 percent to 16.86 billion pounds ($21.6bn), with like-for-like sales, excluding fuel, down 1 percent.

    Sainsbury's reported a statutory pretax profit of just 9 million pounds ($11.5m) for the first half. That reflected 229 million pounds ($293.5m) of one-off costs, the bulk of which follows a review of its store estate.

    Shares in the group were up 0.3 percent at 09:57 GMT.

    Coupe said he was hopeful Sainsbury's shares would be rated afresh once Brexit is resolved and consumer confidence improves.

    SOURCE: Reuters news agency