City reaction: Sainsbury’s pledges fresh investment after Asda set-back

Sainsbury’s bosses have pledged to ramp up investment in the supermarket giant after reporting a rise in annual underlying profits.

The chain revealed a 0.9 per cent dip in like-for-like sales in the final three months of its financial year. Picture: Michael Gillen
The chain revealed a 0.9 per cent dip in like-for-like sales in the final three months of its financial year. Picture: Michael Gillen

The group, which was left reeling after its planned mega-merger with rival Asda was blocked by competition officials, reported a 7.8 per cent hike in underlying pre-tax profits to £635 million for the year to 9 March.

However, statutory after-tax profits fell to £219m from £309m the previous year, weighed down by £396m of charges, including £46m in costs related to the ill-fated Asda tie-up.

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The chain also revealed a 0.9 per cent dip in like-for-like sales in the final three months of its financial year after grocery and clothing trading suffered.

Group chief executive Mike Coupe vowed to increase investment in the group amid “competitive” conditions.

“We will increase and accelerate investment in the core business, investing to improve over 400 supermarkets this year,” he said.

“I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change.”

The firm also warned over a “very promotional” market and said the “consumer outlook continues to be uncertain”.

The full-year like-for-like sales performance was down 0.2 per cent after a challenging second half. Total grocery sales fell 0.6 per cent in the fourth quarter, while clothing dropped 1.6 per cent. Its results showed that, as well as the costs of the Asda merger, bottom-line profits were hit by a raft of other charges, including £81m in retail restructuring costs.

Sainsbury’s, which owns Argos, also promised to slash its net debt by at least £600m over the next three years.

John Moore, senior investment manager at Brewin Dolphin, said: “If it hadn’t been for the collapse of the Asda merger, we might have been talking about a strong set of financial figures from Sainsbury’s.

“As it is, much of the focus will be on what could have been and where the business goes from here; particularly with reference to its UK supermarket estate.

“Nevertheless, these are a robust set of financials from Sainsbury’s in the face of a highly competitive UK retail sector. The business may have lost market share, but it is still performing at a good level, aided by the integration and enhanced offering of Argos.

“While there is a commitment to increase and accelerate investment in the business from management, investors will be waiting for more concrete plans in the months ahead to see what Sainsbury’s next step will be.”

Richard Hunter, head of markets at Interactive Investor, said: “Further investment in stores as well as consolidating the company’s relative success in both convenience and online, whilst strengthening the balance sheet are all worthy targets.

“It remains to be seen whether this actually represents a fresh strategy, or whether indeed it will mark a return to where Sainsbury’s previously found itself – needing a partner to fill in its gaps.”

Neil Wilson, chief market analyst for Markets.com, noted: “There’s some relief for Sainsbury’s stock as profits were ahead of forecast, but the underlying picture remains a tough one for its core grocery business.

“As previously noted, there is a need for a big overhaul in the core grocery division. Management has taken its eyes off the ball as they have first successfully integrated Argos and then failed to takeover Asda.

“When inflation is rising gently and real incomes are improving, supermarkets ought to be performing well – as the rest of the pack. The trouble for Sainsbury’s is that it’s been left behind by Tesco and Morrisons as they have turned things around, whilst simultaneously being caught up from by discounters.”