Sainsbury's warns of rising costs as profits fall 10%

Argos owner Sainsbury's has posted a 10 per cent fall in half-year profits and warned of an even tougher second half for its supermarket chain in the face of surging costs.

Sainsbury's boss Mike Coupe said the retailer was making good progress amid 'challenging' market conditions. Picture: Sainsbury's/PA Wire

The group said it would continue to cut prices for shoppers, but cautioned that the impact of the plunging pound on prices was “uncertain” as it braces for an increase in costs over its second half.

Sainsbury’s reported underlying pre-tax profits of £277 million for the six months to 24 September, down from £308m a year earlier. Bottom line pre-tax profits rose 9.7 per cent to £372m.

It said second-half profits excluding Argos and Habitat owner Home Retail Group – snapped up earlier this year for £1.4 billion – were expected to be lower due to “continued price investment and a step-up in cost inflation in the second half”.

Full-year results overall are set to be in line with market expectations thanks to a boost of between £55m and £75m from Home Retail in the second half.

Sainsbury’s chief executive Mike Coupe said the group had made “good progress” on its turnaround strategy against “challenging” trading conditions.

But the retailer added: “The market remains competitive and pricing pressures continue to impact margins. The full impact of the devaluation of sterling on retail prices is as yet uncertain.”

Sainsbury’s saw profits come under pressure after like-for-like supermarket sales dropped 1 per cent in the first half, with the sector still battling an intense price war.

The falling pound is putting even more pressure on the big players as suppliers begin to demand price increases, with Tesco and Marmite group Unilever embroiled in a recent spat over prices.

Sainsbury’s said it was on track to make savings of £500m by 2017-18 and set a new three-year target to slash costs by another £500m from 2018-19.

The group already has 22 Argos digital stores in its supermarkets and plans to extend this to 30 by Christmas as well as creating a further 30 Argos digital collection points in its supermarkets.

It hopes to ultimately roll out 200 new digital collection points overall across its stores, where customers can collect Tu clothing, eBay and DPD parcels.

Click here to ‘Like’ The Scotsman Business on Facebook