William Low hurt by food price war: Retailer cuts staff and scales back store openings as operating profits drop

WILLIAM LOW, the Dundee- based food retailer, yesterday showed the ravages of the food price war when it reported a fall in margins and a drop in sales at its existing stores in the six months to 19 March, writes Heather Connon.

But a pounds 5m profit on a property disposal meant that profits were ahead of last year.

The group made pounds 12.1m before tax, up from pounds 10.9m. But at the operating level, profits dropped from pounds 11.6m to pounds 8.5m on sales 2.5 per cent ahead at pounds 246.5m.

The sales increase was, however, all due to new store openings; like- for-like sales dropped 2 per cent.

Philip Spicer, chief executive, said the group had taken action to cope with the more competitive market. That included cutting 10 per cent of its head office staff, changing hours worked by staff in stores and scaling back its store opening programme.

Capital expenditure will drop to pounds 26m in the current year from pounds 40m last year, and the group will concentrate on opening smaller stores in less populated areas.

It has also been closing stores that have been performing badly, either because they are old or because rivals have opened near them.

Twelve stores were closed in the first half, compared with four new openings, and Mr Spicer said the closure programme was now complete.

He added that the price pressure over the last nine months was largely caused by Sainsbury's Essentials campaign - which cut the prices of more than 300 products.

While William Low only competes with one Sainsbury store, the price campaign had a knock-on effect on Safeway and Tesco.

Mr Spicer said he believed the market had now stabilised. Together with an absence of the one- off costs suffered in the first half, that made him optimistic about the rest of the year.

But the group warned that operating profits in the second half were unlikely to match the pounds 10.6m achieved last time.

The branch closures and redundancies cost pounds 800,000 in the first half, while the cost of opening stores was pounds 950,000. Mr Spicer said increased competition meant new stores were taking longer to become profitable.

Earnings per share were 13.23p, up from 12.01p, and the interim dividend was held at 2.7p. The shares closed 9p higher at 147p.

(Graph omitted)