2Q20 Trading Update Sainsbury’s reported its 2Q20 trading update, for the 12 weeks ended September 21, 2019. Sales growth improved sequentially:

• Comparable sales ex fuel declined 0.2% year over year, compared to a 1.6% decline in the previous quarter.
• Total sales ex fuel increased 0.1% year over year, compared to a 1.2% decline in the previous quarter.
• Total growth was dragged down by a 2.0% fall in general merchandise sales; grocery sales were up 0.6% in 2Q20 while clothing sales were up 3.3%.

Store Estate Review Seeking to cut costs by £500 million over five years, Sainsbury’s plans to reshape its estate. This will include:

• Closing 10-15 supermarkets while opening 10 new ones.
• Closing 60-70 Argos stores while opening around 80 Argos stores inside Sainsbury’s stores.
• Closing 30-40 convenience stores and opening 110 new ones.

Management expects the closures to deliver an ongoing net operating profit benefit of around £20 million per year. The one-off cost of closures and impairments is expected to be between £230 million and £270 million, of which the cash cost will be £30 million to £40 million. In addition, the company has agreed a new longer-term asset-backed pension plan, which reduces its cash contributions by around £50 million per year. In its financial services business, the company is stopping new mortgage sales, reducing costs and stopping capital injections. The company raised its three-year net debt reduction target from £600 million to at least £750 million. It expects to see a reduction of at least £300 million in FY20. Outlook Management expects 1H20 pretax profit to be £50 million lower, year over year, due to “the combined impacts of the phasing of cost savings, unseasonal weather against a strong comparative period last year and higher marketing costs.” However, in 2H20 the company will annualize a staff wage increase and see a normalization of marketing costs and weather comparatives. Management therefore expects FY20 underlying pretax profit to be in line with consensus of £632 million. Sainsbury’s reports 1H20 results on November 7.