Sainsbury's posts healthy numbers but cautions over outlook

Sainsbury's has posted a 20 per cent hike in half-year profits but cautioned over an 'uncertain' consumer outlook as it presses ahead with its £12 billion merger with supermarket rival Asda.

The summer heatwave helped buoy sales over the second quarter. Picture: Michael Gillen

The group said underlying pre-tax profits rose to £302 million in the six months to 22 September, up from £251m a year earlier. On a statutory basis, pre-tax profits fell 40 per ent to £132m.

The summer heatwave helped buoy sales over the second quarter, with like-for-like growth including Argos but excluding fuel coming in at 1 per cent, up from just 0.2 per cent in the previous three months. This meant comparable store sales rose 0.6 per cent overall in the half-year.

But the group cautioned that the consumer backdrop was “uncertain as we head into our key trading period” and noted that markets remained “highly competitive and very promotional”.

Despite this, Sainsbury’s remains on track for full-year expectations, with analysts pencilling in underlying pre-tax profits of about £634m.

Chief executive Mike Coupe said: “The market remains very competitive and we are transforming our business to meet rapidly changing customer needs.”

He added that the group continued to “engage constructively” with the competition watchdog amid an in-depth probe of its planned tie-up with Asda.

On the impact of controversial recent pay and contract changes for its 135,000 store staff and managers, Coupe admitted the group had seen “bumpy” stock availability in its stores over the early summer period.

But he said: “Our standards are as good as they have ever been. Particularly during the warm weather, availability was a challenge because people were buying certain items.”

Alasdair Ronald, senior investment manager at Brewin Dolphin Scotland, described the latest figures as “impressive, particularly against the much-publicised challenges facing many businesses in the UK retail sector”.

He added: “Its enhanced profits can, in a large way, be put down to the integration of Argos, which Sainsbury’s said has been delivered nine months ahead of schedule and has realised £160m in cost savings – by many measures, it can be deemed a success.”

Hargreaves Lansdown analyst Laith Khalaf noted: “Clearly the big game-changer is the proposed merger with Asda, and the success of the Argos integration shows Mike Coupe and his team are able to spot M&A opportunities and execute them well.”