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Sainsbury's fears consumer hangover after Christmas splurge

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By Reuters
Sainsbury's fears consumer hangover after Christmas splurge
FILE PHOTO: Workers unload a Sainsbury's home delivery van in central London, Britain, April 30, 2018. REUTERS/Toby Melville   -   Copyright  TOBY MELVILLE(Reuters)

By James Davey

LONDON (Reuters) – British supermarket group Sainsbury’s <SBRY.L> expects to trade well in the run-up to Christmas but fears a consumer hangover in the new year if Brexit is unresolved, its boss said on Thursday.

Prime Minister Boris Johnson called a snap Dec. 12 election in a bid to break the Brexit deadlock. Britain is currently due to leave the European Union on Jan. 31, though that could change depending on the result of the election.

“All our experience will say that people will celebrate Christmas, they always do. We would expect that we’ll do well over Christmas,” Sainsbury’s CEO Mike Coupe told reporters.

“But depending on the outcome of the election and how quickly we get the whole Brexit situation resolved, there may well be a hangover into the new calendar year,” he said.

Sainsbury’s reported a 15% fall in first-half profit, blaming the combined impact of the phasing of cost savings, higher marketing costs and tough weather comparatives with last year which impacted on sales.

The 150-year old group did, however, forecast that second half profits would benefit from the annualisation of last year’s staff wage increase and a normalisation of marketing costs and weather comparatives.

It said it was on track to make analysts’ profit consensus for the full 2019-20 year of £584 million down from £601 million in 2018-19.

The first half profit fall comes as Sainsbury’s tries to rebuild confidence in its strategy following a botched attempt to take over rival Asda <WMT.N>. Britain’s competition regulator blocked the agreed £7.3 billion deal in April and Sainsbury’s shares have fallen 34% over the last year.

In September, Coupe put cost cutting and paying off debt at the heart of a new plan designed to show Sainsbury’s can prosper on its own.

The group made an underlying pretax profit of £238 million in the 28 weeks to Sept. 21 – ahead of analysts’ average forecast of £232 million but down from £279 million made in the same period last year. Group sales fell 0.2% to £16.86 billion, with like-for-like sales, excluding fuel, down 1.0%.

Sainsbury’s reported a statutory pretax profit of just £9 million for the first half. That reflected £229 million of one-off costs, the bulk of which follows a review of its store estate.

Shares in the group were up 0.3% at 0957 GMT.

Coupe said he was hopeful Sainsbury’s shares would be re-rated once Brexit is resolved and consumer confidence improves.

(Reporting by James Davey; editing by Kate Holton and Susan Fenton)