Sainsbury's warns of tough trading as profits fall

Supermarket group Sainsbury's has cautioned over 'challenging' trading and ongoing price pressures as it posted an 8.2 per cent fall in annual profits.

CEO Mike Coupe said Sainsbury's remained 'resilient' amid the challenging market conditions. Picture: Sainsbury's/PA Wire
CEO Mike Coupe said Sainsbury's remained 'resilient' amid the challenging market conditions. Picture: Sainsbury's/PA Wire

The chain reported pre-tax profits of £503 million for the year to 11 March, down from £548m the previous year.

Profits fell 1 per cent on an underlying basis to £581m as it sought to keep prices low amid cost pressures from the Brexit-hit pound, which offset a £77m boost from its recently acquired Argos chain.

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The group said the market remains “competitive and the impact of cost price pressures remains uncertain”, with like-for-like supermarket sales down 0.6 per cent over the year.

But Sainsbury’s chief executive Mike Coupe said its food business remained “resilient in a challenging market”.

He added: “This has been a pivotal year and we have made significant progress delivering and accelerating our strategy.”

Group sales, including VAT, surged 12.7 per cent thanks to a robust contribution over the final six months from the Argos business, which the group bought when it acquired Home Retail for £1.4 billion last year.

Sainsbury’s said it made cost savings of £130m as part of a three-year target to cut £500m by the end of 2017-18. It also outlined aims to slash costs by another £500m in the next three years.

Coupe said the group was “pleased” with its progress so far since snapping up Argos, having already opened 59 Argos Digital stores in its supermarkets, which it said were performing well. It is also ramping up plans to open 250 Argos Digital stores.

Today’s figures mark the third year of falling underlying annual profits for Sainsbury’s and show that, while convenience store sales were up 6 per cent and online groceries lifted 8 per cent, the group’s supermarkets saw a decline of 2 per cent.

The group warned that it expects cost price inflation of 2 per cent to 3 per cent over the financial year ahead and said rising prices were set to hit sales of general merchandise and clothing sales the most.

It expects underlying profit over the first half of the current year to be hit by rising costs, in particular from recent wage hikes.

Separate figures from Kantar Worldpanel suggested a more recent boost from the late Easter for Sainsbury’s, revealing a 1.7 per cent hike in sales over the 12 weeks to 23 April – the best performance for nearly three years.

But faster growth from its main rivals saw Sainsbury’s lose market share over the quarter, to 16.1 per cent from 16.5 per cent a year earlier, according to Kantar.

Coupe said the Kantar figures were “strong”, but added this was largely due to the boost from the later Easter and Mother’s Day this year.

John Ibbotson, director of consultancy Retail Vision, said: “Argos has so far proved an effective ‘get out of jail’ card for Sainsbury’s.

“But with inflation biting into consumer spending and the latest retail sales figures showing that the consumption boom is waning, Sainsbury’s must get its core business in order before it comes off its catalogue crutches.”