Wednesday 6 May 2015 8:00 am

Sainsbury’s share price falls after it posts first loss in a decade

Nine years of uninterrupted sales growth came to a halt today as Sainsbury's reported a pre-tax loss of £72m. Investors were not impressed, and the grocer's shares were down 3.6 per cent to 264.8 pence this afternoon.

The figures

Sainsbury's said underlying profit before tax had fallen by 14.7 per cent to £681m in the year to March 2015, down from £798m for the same period a year ago. Retail sales including fuel fell two per cent to £25.8bn. The grocer also suffered a £682m writedown to the value of its property portfolio. This helped push it to a loss before tax of £72m, compared to a £898m profit the year before.

Why it's interesting

The big four supermarket is suffering from something of a space conundrum because, like many of its counterparts, it's been forced to write down the value of its properties, 

In November, analysts at Goldman Sachs issued a note warning that Sainsbury’s, Tesco and Morrisons must cut space by around 20 per cent by 2020 in order to survive in today’s increasingly competitive retail landscape.

Additionally it's caught in a price war between the "big four" supermarkets and German discounters Aldi and Lidl, food price deflation, as well as a tendency for people to do their food shop in convenience stores or online.

But Sainsbury's is fighting back. Last November newly-installed chief exec Mike Coupe unveiled price cuts of £150m, simpler promotions and a focus on product quality, as well as expansion of its non-food, online and convenience business. He also targeted discounters with a partnership through a joint venture with Dansk to return Netto to the UK.

Today Sainsbury's said it opened 98 convenience stores and had over 16 per cent convenience sales growth during the year. It's also growing its digital capabilities, saying the number of online customer orders also increased 13 per cent.

Other revenue streams like general merchandise grew by over seven per cent, while clothing grew by 12 per cent. Its banking arm also increased its total income by over 13 per cent to £260m.

What Sainsbury's said

Coupe said:

The UK marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share. However, we are making good progress with our strategy, and our investment in price and quality is showing encouraging early signs of volume and transaction growth.

We know that our customers still want the best quality food at great prices and our strategy is built on our strong foundations of selling great food with a focus on quality, provenance and sustainability. At the same time, we know that our customers want value for money and we have therefore invested in lowering our prices; our prices versus our competitors have never been better.

We also have significant opportunities to grow our business. Clothing, general merchandise and financial services have all performed well over the past 12 months, as have our convenience and online channels. We have a significant ambition to grow these areas over the coming years.

In short

Sainsbury's continues to struggle amid competition from discounters, food price deflation and a space problem. Nonetheless, it's fighting back with cost-cutting measures, as well as the expansion of its non-food, online and convenience business.