THE contrast between the Sainsbury figures on Wednesday and Wm Low
yesterday can only emphasise the problems the food retailing industry
faces for the foreseeable future.
The Dundee-based group emerged from the 53 weeks to September 7 with
pre-tax profits 10.5% better at #23.6m. However, that conceals the 2%
benefit from the extra week, the swinground into interest receivable of
#1.5m following the #37m rights issue in December and a #1.4m increase
in capitalised interest on store development.
The actual operating profits were marginally lower at #22.3m on
turnover 5% greater at #384m.
Chairman James Millar reckons that Low was about 4% down in sales
terms on what could have been expected 15 months ago as it became
increasingly affected by the pressures on consumer spending. Margins
fell from 6.3% to 5.8% in contrast to Sainsbury seeing a slight
improvement in the UK to 7.47% -- part of the reason for the variation
is that Sainsbury has been much further advanced in information
technology with Low only now starting to benefit from its recent
substantial upgrading of its systems.
However, it would be wrong to be that bearish about Low given the
strength inbuilt into a store portfolio that is young in industry terms
with an appreciable amount of selling space yet to reach maturity as
well as having an expansion programme of 30% over the next two years
which is proportionally the largest in the sector.
The capital expenditure programme has risen from #32m to #44m in the
last year which will be the approximate level for the current year as
well. And present trading is looking a little better in that
like-for-like turnover is now improving although that may owe something
to the price freeze policy introduced in the second week of October to
allay customer suspicions that supermarkets raise prices ahead of
Christmas. That will cost about #100,000.
Mr Millar said that there has not been much evidence of customers
trading down in the cheaper commodity goods but there has been a greater
demand for own label goods which amount to about 20% of the total.
He added that food retailing has changed more in the last year than in
the preceding ten or 12 years. Price has come back into being one of the
most important of the consumer criteria although quality and variety of
choice are still more critical.
Expansion southwards has reached Sleaford in Lincolnshire which would
seem to be the geographic limit at present. The 13 stores south of the
Border will be complemented by in-filling. There will be openings this
year at Cumbernauld, Dundee, Milngavie, Haddington and at Whitehaven in
Cumbria.
The firepower of the three industry giants will almost always allow
them better buying power and cheaper unit distribution costs. But they
and the second division will be anklesnapped by the new entrants such as
Shop Rite, and overseas entrants such as Aldi so that margins overall
will come under increasing pressure.
Low has raised its dividend total 10.8% to 8.4p, with a 5.7p final,
which puts the shares at 283p on a 4% yield while trading at 10 times
historic earnings and about 9[1/2] times those likely for 1991-92.
