Sainsbury's falls into the red

Sainsbury's has fallen into the red for the first time in its 135-year history.

The struggling supermarket giant today revealed a £39 million pre-tax loss in the first half of its financial year.

The slump into losses marks a new low point for a company that was Britain's dominant grocer for decades but has now been overtaken by Tesco and Asda. The company-had been profitable from its earliest days but has faltered disastrously in recent years.

Sainsbury's, founded as a cheese shop in Drury Lane in 1869, had already indicated to the City last month that profits had collapsed - its fourth profit warning of the year. However, today's results underline the huge scale of the challenge facing the new chief executive Justin King.

The figures, which cover the 28 weeks to 9 October, show that underlying profits fell by twothirds - from £366 million to £131million.

But the company was pushed into the red by £168 million of " exceptional " costs incurred during a huge shake-up of the company designed to restore its fortunes. The interim dividend has also been halved from 4.33p to 2.15p.

The results demonstrate that Sainsbury's is struggling to grow its sales against fierce competition from its great rival Tesco.

In the first half of the year, comparable sales from its supermarket tills were down 0.9 per cent on 2003.

Meanwhile, Tesco appears destined to smash all record for sales and profits this year, and is expected for the first time to breach the ?2 billion profit barrier.

Today Mr King insisted that Sainsbury's could be restored to greatness.

He said: "We are clear on the actions we need to take to make Sainsbury's great again.

"We are beginning the implementation of the plans arising from the business review to rebuild a sustainable sales-led recovery."

The company said that to win back shoppers it had completely changed its approach. "The customer is now at the heart of all decision making," it promised.

Sainsbury's, which is still 35 per cent owned by its founding family, is now seen in the City as a prime takeover target

However, members of the dynasty have recently expressed their support for the new management team.