J Sainsbury deferred a decision on whether to pay its dividend until later in the year and axed bonuses for senior management amid a cautious outlook for its non-food business in particular.
Mike Coupe, chief executive, said the company was assuming “full lockdown to the end of June, some releasing of the shackles during September and some form of social distancing in place for [the] remainder of the year”.
He forecast that an economic downturn would put pressure on non-food sales.
Sainsbury’s expected a profit hit of about £500m in the year ahead, as it introduced staff protection measures — such as plastic screens — in its stores and suffered lower fuel and clothing sales. But that would be offset by a £450m benefit from a business rates holiday and higher grocery sales.
Overall, the UK’s second-largest supermarket group expected next year’s underlying pre-tax profit would be similar to the £586m it reported for the year to March 7 2020. That number — disclosed on Thursday — was a small decline from last year’s £601m and broadly in line with analysts’ forecasts.
Unlike rival Tesco, which declared a dividend and hinted that executive pay schemes would not be altered, Sainsbury’s said that no bonuses would be paid in respect of the year just ended, resulting in an effective 13 per cent pay cut.
“Any decision on dividend is difficult, but ultimately the board came to the conclusion that given the level of uncertainty we would defer any decision on paying a dividend to the autumn,” said Mr Coupe.
He is due to retire in July, so the decision on the payout will be for his successor, Simon Roberts.
The dividend decision was described as “puzzling” by James Grzinic, an analyst at Jefferies, and Sainsbury’s shares fell 3 per cent in morning trade.
James Anstead at Barclays said he “struggled to see why the dividend would not be paid, given there is no obvious net cash cost from the Covid-19 crisis”.
Sainsbury’s expected sales of clothing and other general merchandise to decline later in the year, even though sales at its Argos brand were currently still growing, despite the temporary closure of all 573 standalone Argos stores.
Another 50 Argos stores would close permanently this year as part of a wider property review, it said. Even before the pandemic, about two-thirds of Argos sales were made online, and there are more than 300 Argos branches within Sainsbury’s supermarkets.
Mr Coupe said there had been notable changes in food shopping habits, with consumers making fewer trips but spending more each time, and a surge in demand for online grocery delivery.
Some of these shifts may become permanent, he said. “Whatever was happening anyway, broadly speaking a move to digital will probably be accelerated as a result of the Covid situation as customers get used to a different way of shopping.”
Use of the SmartShop app, which avoids the need to pass through a conventional checkout, had “gone through the roof”. The grocer has also almost doubled its home delivery capacity.
Online order baskets are on average 50 per cent bigger and greater order volumes have improved efficiency. “On balance [online grocery] is still dilutive but it is more profitable than it was pre-Covid,” said Mr Coupe.
Like Tesco, the company expected its financial services operation to make a loss as a result of higher impairments, reduced consumer spending and lower demand for travel money.
However, it did not anticipate further capital injections into the unit, which Mr Anstead described as “a major relief”.
“Overall we are very encouraged by this statement . . . we had assumed profits of £535m for this year so if the ultimate outcome is similar to the £586m of 2019/20 then this is clearly better than we forecast,” he added.
The headline of this article has been changed since publication to clarify that Sainsbury’s delayed a decision about its dividend rather than the dividend itself
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