BusinessCompany NewsNo field day for grocer

No field day for grocer

Supermarket chain Somerfield faces a testing time as it announces its interim results today. Tough competition and difficult trading conditions have seen a considerable slowdown in growth.

Despite a hopeful beginning to its financial year, Somerfield approaches its results fighting an uphill battle.

When the interim results emerge today, the grocer will have an opportunity to look back on the past six months and make new year’s resolutions.

At the beginning of the year, City analysts were bullish over the supermarket, upgrading forecasts and ratings for its shares.

But some, like Teather & Greenwood analyst Rowan Morgan, were less optimistic.

After an analyst meeting in July, he said: ‘Today’s statement clearly flags that it will take some time for the recovery to feed through.’

The company is in the midst of a five-year recovery plan, which has been kicking in slowly since the beginning of the year. In April, it posted a loss for a second consecutive year although the slump was lower than the previous year.

Since then, it has implemented a new basis for reporting like-for-like sales, saying its previous reporting was ‘adversely distorting the like-for-like statistic’.

The company also had 300 of its Kwik Save stores revamped and embarked upon an ill-fated promotions programme in attempts to increase sales.

Its new resolution is to revise its definition of turnover as it publishes interims, and no longer include the free sale element of multi-value promotions, in line with industry practice.

But Somerfield said the changes will not affect profits. At its November agm, it claimed like-for-like performance was ‘strong’ compared to last year, but it saw a 0.6% drop in sales in the second quarter and margins as a result of this aggressive promotion.

The company’s first-quarter performance was not up to expectations as sales slowed to only 3.9%, after the company had reported a 7% growth in the first eight weeks of the quarter.

Analysts at Merrill Lynch said no other food retailer had slowed that much and that the figures pointed only to the period to mid-August so the subsequent period may have shown a further decline in growth.

The food retailer also took a hit following a monopoly report into the ‘big five’ grocers by the Competition Commission, which found problems in relations between major supermarkets and suppliers.

Although expectations for the full year remained the same, it remains cautious about future prospects because of weakness in the UK economy and strength of competition. Somerfield expects pre-tax profits for the full year to April 2002 to be about £24m.

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