Sainsbury brings back dividend and staff bonus as cash surges in first half

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J Sainsbury PLC (LON:SBRY) has hiked its dividend and promised its staff another bonus as it expects full-year profit to be at least 5% higher than last year after a strong half-year performance.

New chief executive Simon Roberts, who started in June, also unveiled a range of long-term strategic tweaks that are expected to “drive an inflection in underlying profit momentum” that will cut debt over the next two years and generate average annual free cash flow of £500mln in the three years to 2025. 

But up to 3,500 staff may lose their jobs from the changes, which include closing 420 Argos stores by March 2024 as every Sainsbury’s store will have either an Argos in-house store or click and collect point, closing 15 to 20 supermarkets and 50 to 60 convenience stores, plus closing deli, meat and fish counters permanently among other strategic twiddles.

Total sales in the half-year to September 19, 2020, were up 6.9% on a like-for-like basis, with grocery sales up 8.2% and general merchandise sales up 7.4%, including Argos up almost 11%.

This compared to 8.2% LFL sales in the first quarter, with grocery up 10.5% and GM up 7.2%, when the first coronavirus (COVID-19) lockdowns in the UK boosted sales, as they are expected to do again in November and perhaps December too.

Total group revenues of £16.6bn were down 1.8% as financial services revenue fell 24%. Digital sales more than doubled to £5.8bn, of which groceries online sales up 102%.

Despite pocketing £230mln in business rates relief, offset by £290mln of Covid costs, the grocer made a loss before tax of £137mln, which reflected £438mln of extra costs, mostly from closing standalone Argos outlets. Excluding all these ‘one offs’, underlying profits were £301mln.

But with strong free cash flow of £943mln, Sainsbury’s was able to declare an interim dividend of 3.2p plus a special dividend of 7.3p which it said was in lieu of the missing final dividend for the previous financial year, while staff will also get a second 10% “thank you payment”.

With COVID-19 accelerating a number of shifts in the industry, investments by Roberts’ predecessor over recent years in digital and technology, he said, “laid the foundations for us to flex and adapt quickly as customers needed to shop differently”, with 40% of sales made digitally in the half compared to 19% a year ago.

Shares in the supermarket group fell almost 3% to 203.2p on Thursday morning, leaving them down 12% since the start of the year.

Analysts at UBS said profits were better than the City consensus forecast and, looking the increased full year outlook of at least 5% higher than last year’s £586mln, said the board was being prudent around second half profit margins, investment in prices and products, and ongoing Covid costs.

“With sales healthy, online getting better, the bank turning to profit in 2H and further rates relief, we still think this is conservative.”

   –Adds share price and broker comment–

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