Sainsbury s shares on edge after sales fall and forecast cut

J Sainsbury Plc. this morning cut its forecast of full-year sales after reporting a fall in quarterly sales amid cut-throat competition.

For the 16 weeks to 27th September, the grocery chain said its closely-eyed same-store sales figure had declined 2.8%, the third quarterly decline in a row.

Same-store, or ‘like-for-like’ sales, are calculated by excluding newly opened stores.

As a result of the slowdown, Sainsbury said it now expected like-for-like sales in the second half of the year to be similar to the first half—that means a fall of 2.1% compared to a rise of 0.2% the supermarket was expecting previously.

Total quarterly sales, excluding fuel, declined 0.8%.

Sainsbury posted a 2.1% fall in same-store sales, excluding fuel, for the first half.

Total sales for period, excluding fuel, were flat.

The CEO of Britain’s third-largest grocery chain, Mike Coupe, confirmed in a statement Sainsbury had not escaped the factors impacting its close peers, Tesco and Morrison.

“In the second quarter, our performance has been impacted by the accelerated pace of change in the grocery market, including significant pricing activity and food price deflation in many areas,” he said.

“These conditions are likely to persist for the foreseeable future and we now expect our like-for-like sales in the second half of the year to be similar to the first half,” Coupe added.

What about the dividend?

One glaring omission from Sainsbury’s announcements so far this morning: no update on the dividend.

Coupe has indicated the supermarket will provide a detailed strategic update with interim results on 12th November.

However, it seems highly unlikely Sainsbury management will be able to avoid discussing the issue of dividends when they are quizzed by analysts during a conference call about today’s update.

That call is set to start in a few minutes.

We have suggested this year’s dividend is very likely to be cut.

Even so, it looks like analysts’ estimates, including mine, were slightly more pessimistic about Sainsbury’s headline second-quarter like-for-like sales than was warranted.

I expected these sales to have fallen by between 3.5%-to-5%.

The fact that sales fell by a more moderate 2.8% might be saving Sainsbury’s shares from a more severe sell-off than they’re seeing right now

The shares are down 3.5% as I write this.

However, any suggestion by management during the conference call that the full-year dividend may be cut, will probably push the shares markedly lower.