(MENAFN- ProactiveInvestors) Traders weren’t exactly filling their trolleys with () shares today.
The grocer’s full-year numbers were stacked with some rather unappetising figures – some expected some not.
Underlying profit before tax of £345mln down 52% on a year ago was around the mid-point of the guidance range and the dividend was grown by the promised 5% for the year just passed.
More of a shock was a potential 63% dividend cut for the year ahead a huge £1.3bn property impairment charge and the closure of 23 convenience stores.
Unfortunately from an investment perspective the surprises highlighted some sobering truths.
Firstly the attraction of holding the stock for its punchy dividend yield (6.8% last year) has now been largely removed.
Next despite being the smallest of the so called Big Four the firm has taken the largest property hit so far.
(Sainsbury’s wrote off £628mln off its property assets in November with its results).
The write down came as the supermarket attempted to reconcile the values it had on its books with the price it could get if it sold sites.
Rival is forecast to take at least £1bn of write downs when it reports annual results next month.
Thirdly the need to consolidate its convenience offering highlights the troubling competitive landscape that finds itself in.
In that sense it’s a rather gloomy picture when you are looking down the aisle
Given the Bradford-based grocer operates as the minnow of the major four supermarkets it is perhaps worst placed of the large multiples to implement £1bn of price cuts announced last year to fend off discount rivals Aldi and Lidl.
Investors may look elsewhere until the turnaround shows sustainable growth.
“The share price has tended to mirror these difficulties having fallen 11% over the last year” said Richard Hunter head of equities at .
“Although over the last three months there has been an 18% pop following the previously well received third quarter update.
“Even so the enormity of the task ahead is patently visible such that the market consensus has weakened of late to now come in at a sell.”
Still if there is a silver lining to these figures it is that sales declines were slowing by the fourth quarter to 2.6% and that the UK retail sector and broader economy have given reason for cautious optimism for the year ahead.
Another positive is that the supermarket chain fared best in 2014 in terms of share price performance and shares are up 1% today on the back of the figures. But this might also suggest that investors have underestimated the scale of the challenge faces.
A reduction in net debt (down by £477m to £2.34bn) decent cash generation and the fact that the three-year £1bn cost-saving programme is on track are also indications of a reforming business.
has made some decent strides online too with annual sales reaching £200m which is promising momentum.
Analysts have cautioned reading too much into future plans due to the fact that the new chief executive David Potts starts work next week.
Key for the name going forward will be the effect of new CEO ex- director David Potts and we caution reading too much into strategic plans released today; all could be subject to change.
“There is no silver bullet for mainstream retail” said Joe Copestake retail analyst at the Economist Intelligence Unit.
“Three of the four largest UK supermarket chains now have relatively new CEOs and the coming year will be a strong test of how each of them can respond to the new discounter-led operating environment.”
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