Big Food warns after slip at Iceland
FIERCE competition in the supermarkets sector has sent sales into reverse at Iceland, with the 748-strong food shops chain suffering a 1.9% decline in recent weeks.
Sales are also sliding at Booker cash-and-carry and Bill Grimsey, chief executive of parent company Big Food Group, warned today there will be no growth in first-half profits. But he remains confident BFG will match full year expectations, thanks to 'robust margins' and tighter control of costs.
The group is also to close two of its distribution centres, at Didcot and at Bellshill in Scotland. This will throw up exceptional costs of £12m, but will save more than £2m a year.
Although profits for the year to 2 April were in line with City expectations at £50.1m before goodwill and exceptionals, an increase of 35%, current trading has taken a turn for the worse.
The 1.9% decline at Iceland over the six weeks to 14 May, and the 1.5% fall at Booker, constitute a sharp acceleration of the downward trend seen in the final quarter.
Iceland profits staged a significant recovery last year, from £8.1m to £24.1m, taking them back to the levels of two years ago, despite higher rents. Gross margins improved across all product areas. At Booker, operatingprofits for the year edged ahead from £56.9m to £57.6m.
But Grimsey, who moved in to revitalise the group in 2001, once again highlighted the increasingly fierce competition in the sector since the Morrison takeover of Safeway.
The revamped Iceland stores are doing well but price-cutting has hit outlets awaiting conversion. He is accelerating the store refit programme, under which 142 outlets have already been given the new look and a further 150 will be converted in the current year. Results from the new stores are 'very encouraging'.
Numis Securities has lowered its price target on Big Food Group to 100p from 130p after the results.
'The market is set to become increasingly challenging, meaning that top line growth will be really hard to come by,' said Numis analyst Rachael Waring in a note.
'The stock has fallen below our already reduced target price in the last few months, but there is little in these figures to make us feel more optimistic at this stage.'
