Sainsbury has already implemented a range of strategic initiatives to reduce costs. This comes on the heels of a major layoff of its headcount after shutting down its cafes and patisserie counters earlier in the year. As of Wednesday, the supermarket colossus was on track this year to double its adjusted profits. They shot up by 10.6%, amounting to a mind-boggling £3.1 billion. It foresees a 7%-10% drop in consolidated operating income for the next fiscal year. The estimated range was between £2.7 billion and £3 billion.
So far this year, Sainsbury is reporting a 3.3% rise in sales to £3.5 billion. This growth is most pronounced in its French business, where an acceleration has accounted for a nice lift in their top-line growth. Revenues at Sainsbury’s show underlying momentum nearing 3% growth. Operating costs are set to rise even further for the company, due to a boost to national insurance contributions, which will increase its operating costs by £140 million in the new financial year.
However, taken together with the company’s recent announcements, a hard road of trade-offs over headcount and pricing decisions might be ahead. Among Sainsbury’s other cost-cutting measures is cutting 20% of its senior management positions. This choice is expected to save more than £1 billion in savings in upcoming years. To us, it shows the company’s serious new approach to fiscal responsibility — far more important than a return to boomtown market highs.
Sainsbury isn’t giving up on solving these operational challenges they’ve run into. They plan to earn underlying operating profits of £1.01 billion to £1.06 billion, 7% higher than last year’s results. Additionally, the company is targeting a retail free cash flow of at least £500 million. This new goal is evidence of its deep commitment to ensuring long-term financial health.
Sainsbury’s Heron Foods subsidiary is having a tough time. Its most recent report showed a 1.2% year on year negative revenue trend year to date, with £411 million in total revenues. The significant drop raises concerns about the group’s ability to maintain its momentum and overall success. It has to contend with a difficult and cutthroat retail environment.
Sainsbury is growing by leaps and bounds! The company announced it was opening 73 new stores this fiscal year, with 45 of those destinations in the UK. This expansion is further evidence that the company is headed in the right direction. It’s trying to increase its share of the market and attract more people to its business.
Sainsbury’s shares remain under pressure, despite some encouraging profits and long-term growth strategy. The story was compounded by both being relegated from the FTSE100 index in December. Investor sentiment seems pretty shaky as the company tries to juggle continued growth with the need to cut costs with some severity.
Sainsbury declared a special dividend of 15p per share, due to be paid on 14th February. This strategic shift includes rewarding shareholders during these changes at the company.