Covid-19 will disrupt business through September: Sainsbury

Bloomberg

J Sainsbury Plc, Britain’s second-largest grocer, said the Covid-19 pandemic will disrupt business until September, and then the economic fallout will set in.
Costs will rise by 500 million pounds ($623 million) this year because of safety measures and lower fuel sales. That will be offset by 450 million pounds of property tax relief from the UK government, leading the grocer to say pretax profit will probably remain unchanged this year. The stock fell as much as 5.1%
Sainsbury’s forecast is based on the premise that lockdown restrictions ease by the end of June. The grocer has faced enormous demand from consumers stockpiling goods, but its costs have risen too.
The grocer is one of the few consumer-goods companies to give such a detailed scenario of what might happen and its likely profits this year.
Many companies have withdrawn their financial guidance because of the uncertainty caused by Covid-19. Sainsbury called its outlook a “base-case scenario” that may need tweaking, rather than a forecast.
Food demand is still strong though clothing and fuel sales are plummeting this quarter, which portends negatively for profitability. Sainsbury’s bank division, which has worried investors in the past, has sufficient liquidity and won’t require a capital injection, Coupe said. Growth at Argos, its consumer products division, has tapered as its standalone stores have been closed since March 24.
“We struggle with the level of positivity on this year’s profits given the exposure to the bank and Argos,” wrote Bruno Monteyne, an analyst at Sanford C Bernstein.
Outgoing CEO Mike Coupe said he did not feel he was being overly bullish, “in fact just the opposite.”

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