Store wars send Sainsbury profits into nosedive

Troubled supermarket giant J Sainsbury's profits dived 29.5% as the group invested heavily to hold its own in the store wars, it said today.

Troubled supermarket giant J Sainsbury's profits dived 29.5% as the group invested heavily to hold its own in the store wars, it said today.

Sainsbury said the cost of developing campaigns to help drive up sales had dragged down profits.

It spent £54.9 million trying to boost its business by "streamlining" its supermarket operations, which included 1,100 job cuts and closing 99 loss-making kitchen studios at its DIY Homebase chain.

The costs dragged its pre-tax profits down to £297 million in the 28 weeks to October 16, from £421 million last year.

Excluding the one-off costs spent on the overhaul, profits fell 17.6% to £352 million.

Total sales for the group, including its Homebase DIY stores and its US-based Shaws business, increased to £9.1 billion from £8.7 billion.

But sales from its UK supermarkets were still under pressure from "an increasingly competitive market" and rose by just 0.7%.

On a like-for-like basis - stripping out sales made in new stores - the picture was more gloomy, with a decline of 1.3%.

Sainsbury's has been under siege in the price war campaign with its rivals Tesco and Asda, which have been winning market share by heavily discounting food prices.

But chief executive Dino Adriano said he remained confident the group would see positive like-for-like sales growth by the end of the current financial year, and Sainsbury's outperforming its rivals in the following 12 months.

"We have made good progress on our objectives outlined in June," he said.

"I think if we weren't setting such targets we would be criticised for not setting aggressive enough goals."

Mr Adriano said Sainsbury's would continue its £50 million cost-cutting plan, outlined in June, with £20 million in savings to come during the remaining months of its current financial year.

But he warned that the group's trading performance in the second half would heavily depend on the lucrative Christmas and New Year period.

Meanwhile, Mr Adriano said he was keen to see the group continue to expand overseas following the success of its Edge supermarket businesses in Egypt and the US-based Shaw's and Star Markets chains.

Sainsbury's was also looking at the possibility of buying up to 140 stores put up for sale recently by struggling food retailer Somerfield.

"We obviously would be looking at Somerfield - a lot of people obviously are," Mr Adriano said.

"But I can't comment on any particular position we have reached on that."

Mr Adriano said the group's move into the convenience store market with its Sainsbury's Local stores was progressing well.

Plans announced earlier this year to open 200 stores over the next three years, creating 10,000 jobs, were on track.

Between 18 and 20 new Sainsbury's supermarkets would also be opened in the next financial year, creating another 10,000 jobs, while the Homebase chain would add 12 more stores.

Around 22 of Sainsbury's existing supermarkets were undergoing extensions and refurbishments as part of the group's plan to turn its business around and increase sales.

Sainsbury's Bank was also performing well, returning to the black with a £900,000 profit compared with a £3.6 million loss last year.

The interim dividend was maintained at 4.02p.