Sales blow for Sainsbury: Property write-down adds to food retailer's woes as shares tumble

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The Independent Online
THE REPUTATION of J Sainsbury as the doyen of food retailers was dented yesterday when it revealed a decline in sales volumes, a decline in gross margins and a pounds 365m write-down of its property portfolio.

The market had expected better news after an optimistic trading statement from Tesco last week, and Sainsbury's shares were marked down 48p to 393p.

Other retailers were also hit as the City feared that Sainsbury's lacklustre results could spark a price war. Tesco shares shed 0.5p to 222.5p while Argyll, owner of the Safeway chain, fell 14p to 258p.

Sales at Sainsbury supermarkets rose 4.6 per cent in the 16 weeks to 15 January, but this was entirely due to new store openings. Excluding these, sales were down 1 per cent - the first time in years that Sainsbury has suffered a volume fall.

Last week Tesco reported 2.5 per cent like-for-like growth in the 11 weeks to 1 January. That reversed more than 18 months of volume declines and Sir Ian MacLaurin said he believed Tesco was stealing market share from its competitors.

David Quarmby, Sainsbury's joint managing director, admitted the group had lost market share but added that the loss had to be compared with previous periods when Sainsbury was gaining.

He said 1992 had been boosted by the success of its British Airways promotion, offering free flights for particular levels of spending, which pushed sales up 4.5 per cent. The promotion was repeated in 1993 but had no impact on sales.

Mr Quarmby said customers were given extra time to meet the targets, but Sainsbury would 'look very carefully' at whether the offer would be repeated.

Analysts had expected sales to be boosted by the Essential for Essentials campaign offering lower prices on 300 own-brand lines. Mr Quarmby said that was in force for only 11 of the 16 weeks.

It has cut gross margins by about 0.4 percentage points, although the group said it believed the decline had now stopped. Analysts estimate Tesco's margin has fallen by 0.7 percentage points.

Sainsbury said it was looking for cost savings in its business and this could lead to job cuts among its 3,000 head office and support staff.

It expected profits to be affected by the fall in gross margins and there would be only a small increase in 1994. Analysts downgraded forecasts by about pounds 50m to pounds 750m, before a pounds 40m depreciation charge.

The group also joined Tesco in announcing that it would depreciate stores over 50 years which, together with a change in policy on fixtures and fittings, will cost pounds 40m in 1994. Argyll and Tesco are depreciating over 40 years.

A decline in the price of land has also forced Sainsbury to write pounds 365m off its land portfolio, all of which will be charged in the current year. Tesco is depreciating the excess over 25 years.

Sainsbury has calculated the excess by comparing the cost with the current value for food retail use, while Tesco looked at the value under alternative uses.