JSAIY J Sainsbury Plc (QX)

--Sainsbury to cut debt by at least GBP600 million over next three years

--Grocer plans more investments in its supermarket segment.

--Sainsbury books GBP46 million costs against failed Asda merger.

By Adriano Marchese

J Sainsbury PLC (SBRY.LN) said Wednesday that it will accelerate investments in its core business and reduce debt by at least 600 million pounds ($783.8 million) over the next three years after U.K. regulators blocked its planned merger with Asda.

The number two grocer by market share--which disclosed that the failed merger cost it GBP46 million--said that it plans to improve more than 400 of its supermarkets this year, having already completed a major transformation of how it runs its stores.

Despite the costs and management distraction as it fought regulators to save its deal to buy Walmart Inc. (WMT)'s U.K. arm Asda, Sainsbury still managed to report market-beating fiscal 2019 earnings and raise its dividend.

Shares moved up 9.40 pence, or 4.2%, at 231.90 pence on the news.

However, Chief Executive Mike Coupe still needs to convince the market of his plan for the grocer's future.

"There is a lot of positive talk in the results as Mike Coupe tries to reassure the market that he has a grip on the business and is addressing negatives such as store standards," AJ Bell's Russ Mould says. However he says Sainsbury needs a plan get its grocery proposition back on track to have a fighting chance to win back some market share.

Hargreaves Lansdown's Laith Khalaf adds that Sainsbury isn't out of the woods yet despite the better-than-expected full-year results. He points to a number of one-off costs, including that booked for the failed Asda deal and compares it's flatlining sales growth with a "resurgent" Tesco PLC (TSCO.LN).

Sainsbury made a pretax profit of GBP239 million for the year ended March 9 compared with GBP409 million the previous fiscal year.

Underlying pretax profit--the company's preferred metric which strips out exceptional and other one-off items--was GBP635 million compared with GBP589 million the prior year. This beat a forecast of GBP624.3 million, based on a consensus of 10 analysts provided by FactSet.

Revenue for the year rose to GBP29.01 billion from GBP28.46 billion. This compares with a GBP28.94 billion forecast based on 15 analysts' estimates provided by FactSet.

The company said Argos, which the company acquired in 2016, has been fully integrated into the business and delivered GBP160 million in synergies ahead of schedule.hey

The board has declared a final dividend of 7.9 pence a share, bringing the total year payout to 11.0 pence. This compares with 10.2 pence a year earlier.

Net debt was reduced by GBP222 million to GBP1.64 billion in the year.

"I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change," Chief Executive Mike Coupe said. He didn't provide further information on the company's plan except to say it will update the market on its progress on Sept. 25 when the company holds its Capital Markets Day.

Last Thursday Sainsbury and Asda threw in the towel on their planned merger after the U.K. Competition and Markets Authority blocked it nearly a year after the two grocers first agreed to combine.

The merger would have brought together the U.K.'s second- and third-largest grocers, making it bigger than Tesco PLC (TSCO.LN), which currently has 27.3% of market share, according to a report by Kantar Worldpanel. Sainsbury has a 15.4% market share while Asda has a 15.2% share.

Write to Adriano Marchese at adriano.marchese@dowjones.com

(END) Dow Jones Newswires

May 01, 2019 08:45 ET (12:45 GMT)

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