New low as Sainsbury's goes into the red

Former UK supermarket powerhouse Sainsbury’s hit a new low in its 135-year history today after announcing losses for the first time.

The troubled group recorded a deficit of £39m (€55.6m) for the six months to September 30, down from profits of £323m (€460.5m) a year earlier.

One-off costs from a business turnaround sanctioned by new chief executive Justin King last month were blamed for dragging the group into the red.

Even without those charges, Sainsbury’s saw underlying operating profits for the period halve to £155m (€221m) after like-for-like sales weakened 0.9% in the wake of well-documented problems with stock availability.

The company recently laid out plans to revive its fortunes, although analysts believe management may not get the chance if reports of takeover interest are correct. Former Asda boss Allan Leighton is among those believed to be stalking the UK’s former number one supermarket chain.

Sainsbury’s has been overtaken by Tesco and Asda at the top of the retailing tree, while Safeway owner Morrisons is challenging for number three spot.

As part of the turnaround, Mr King is recruiting an extra 3,000 staff and going back to basics, including through an overhaul of its supply chain.

In total, the business review is expected to cost Sainsbury’s £550m (€784.4m) over the financial year, meaning full-year figures in mid-May are also likely to be in the red.

Only the recent sale of US chain Shaw’s helped prop up today’s results, with further exceptional items of £168m (€239.5m) also pulling the company lower.

Despite the loss, Sainsbury’s shares held firm as the company stuck by guidance on trading issued at the time of last month’s business review.

Sainsbury’s chairman Philip Hampton said he believed the retailer had the building blocks in place to achieve a recovery – aimed at growing sales by £2.5bn (€3.6bn) over the next three years to the end of the 2007 financial year.

He added: “We have now embarked on a sales-led recovery, which we believe will enable Sainsbury’s to deliver long-term sustainable performance and profit.”

Among other changes, Sainsbury’s will spend at least £400m (€5.7m) on product quality and place more onus on fresh food and own label products, particularly its Taste the Difference and Be Good to Yourself ranges.

Henk Potts of Barclays Stockbrokers said cheaper rivals such as Asda and Tesco and Waitrose at the top end of the market had put the squeeze on Sainsbury’s.

He added: “If it can get the right products on the shelves then there’s hope. But it’s going to take a long time and in the meantime all the other chains will continue to march on.”