Britain's Sainsbury's warns of $623 million coronavirus hit to profit

By James Davey

LONDON (Reuters) - British supermarket group Sainsbury's <SBRY.L> warned the impact of the coronavirus pandemic on current year profit could be over 500 million pounds ($623 million) and said decisions on paying dividends to shareholders would be deferred.

However the group, No. 2 to market leader Tesco <TSCO.L>, said that under its "base case" scenario the hit to profit would be broadly offset by stronger food sales and about 450 million pounds in business rates relief from the government.

That would mean the company's underlying pretax profit for the year to March 2021 would be broadly unchanged from the 586 million pounds it reported on Thursday for 2019-20.

Shares in Sainsbury's were down 5% at 1100 GMT, extending losses for 2020 to 14%.

The group's base case assumes that lockdown restrictions ease by end-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 affected by weaker economic conditions for the remainder of the year.

"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.

NO REGRETS

Sainsbury's said profit would be dented by costs associated with social distancing and safety measures to protect customers and staff, along with weaker sales of fuel, general merchandise and clothing, and a swing to a loss at its financial services business.

"Financially we're in very good shape... if COVID-19 is worse than our base case we're confident we have sufficient cash and funding in place," said finance chief Kevin O'Byrne, pointing to an undrawn revolving credit facility of 1.45 billion pounds.

However, given the wide range of potential profit outcomes, he said it was prudent to defer any dividend payment decisions until later in the year, when visibility is better.

"We struggle to see why the dividend would not be paid, given there is no obvious net cash cost from the COVID-19 crisis," said analysts at Barclays.

O'Byrne said Sainsbury's Bank would not require another capital injection.

No annual cash bonuses will be paid to executive directors and the wider senior executive team for the 2019-20 year.

Earlier this month Tesco estimated a 925 million pound hit from the cost of dealing with the pandemic, and defended its decision to pay investors a 635 million pound dividend

Sainsbury's said grocery sales were up 12% in the seven weeks to April 25.

Grocery sales soared 12%, 29% and 48% in the weeks to March 7, 14 and 21 respectively, before Britain went on lockdown on March 23.

"We had five consecutive days where we sold more food than our busiest day in any Christmas," said Coupe.

While Britain's food sector has traded well through the lockdown, with record sales in March and strong growth in April, the wider retail sector is struggling.

The Confederation of British Industry said on Tuesday that retailers endured their biggest sales fall since the 2008 financial crisis in the first half of April as the pandemic hit demand.

Prior to the outbreak, Sainsbury's was trying to rebuild investor confidence after Coupe's attempt to buy rival Asda <WMT.N> was blocked on competition grounds.

Coupe said he had no regrets over his time in charge.

"I never have regrets, you can only play the ball that's in front of you," he said.

(Reporting by James Davey; Editing by Paul Sandle and Jan Harvey)