Pear-shaped

11 October 2004

The UK supermarket group has revealed another cut in profits. And the information has come out in an unfortunate way. This could undermine CEO Justin King s credibility ahead of a critical review just when he needs it most.

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J Sainsbury said its profits before tax for the half year ended 9 October 2004 are expected to be within a range of between £125m and £135m. The UK supermarket group said it was making the statement following recent analyst and press comment.

This comes after the company was contacted by the Financial Services Authority, reportedly about whether it needed to issue a trading statement. A Merrill Lynch research report, published on Friday, said the broker was cutting its profit forecasts for the second time in one week following a conversation with Sainsbury.

Sainsbury had warned in July that the company's profit expectations for the year ending in March 2005 were significantly lower than the market consensus. It had also said the majority of the impact would be in the first half of the year.

Following the warning in July, analysts had cut pretax profit estimates to about £400m from about £500m. In recent weeks, analysts have come out with significantly lower figures. Other than Merrill, WestLB said it expects pretax profits to be £205m. UBS, the group's broker, cut its estimates to £330m.

Sainsbury is conducting a business review, the conclusions of which will be announced on 19 October 2004. The group said guidance for the full year will be given as part of the presentation of the business review.

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