Sainsbury’s warns of £500 million hit to profit from coronavirus

Sainsbury’s warned the impact of the coronavirus pandemic on current year profit could be over £500 million and said it would defer any dividend payment decisions until later this year.

However the group, No. 2 to market leader Tesco, said under its “base case” scenario the hit to profit would be broadly offset by stronger grocery sales and about £450 million in business rates relief from the UK government.

That would mean Sainsbury’s underlying pretax profit for the year to March 2021 would be broadly unchanged from the £586 million reported on Thursday for the 2019-20 year.

The group’s base case assumes that UK lockdown restrictions would have eased by the end of June, but that the business would continue to be disrupted until mid-September.

It also assumes that consumer demand, particularly for general merchandise and clothing, would be impacted by weaker economic conditions thereafter.

“This is not guidance, this is a base case, it is heavily caveated and we would be the first to acknowledge that there are a whole series of scenarios both ways that can make it better or worse,” Chief Executive Mike Coupe told reporters.

Coupe is retiring as CEO on May 31 and will be succeeded by Simon Roberts, the current retail and operations director.

Profit would be hit by significant costs associated with social distancing and safety measures to protect customers and staff, weaker sales of fuel, general merchandise and clothing, and lower financial services profitability, it said.

Sainsbury’s said it has used more negative scenarios in stress-testing its financial viability.

“Even with additional stress, we are confident that we have sufficient cash and committed funding in place to meet our obligations for the foreseeable future,” it said.

However it said given the wide range of potential profit and cash flow outcomes, it believed it was prudent to defer any dividend payment decisions until later in the financial year, when there will be improved visibility on the potential impact of COVID-19.

Earlier this month Tesco estimated a hit of up to £925 million from the costs of dealing with the pandemic, and defended its decision to pay investors a £635 million dividend while accepting business tax relief from the British government.

Sainsbury’s said group sales were flat at £32.4 billion in its year to March 7.

Grocery sales soared 12 percent in the seven weeks to April 25, but clothing sales slumped 53 percent and fuel sales plunged 52 percent.