Sainsbury’s profits are hit despite Argos boost
A SALES surge at its recently acquired Argos business softened the blow of declining grocery takings for Sainsbury’s as profits fell for the third straight year.
Britain’s second-biggest food retailer expanded into areas such as electrical goods when it bought Argos owner Home Retail for £1.4 billion last year.
Sales at Argos grew 4.1 per cent and the introduction of digital stores within Sainsbury’s supermarkets is also boosting sales.
Savings of £160 million from the takeover are set to be delivered six months early. The clothing business outperformed the wider market with 4 per cent sales growth.
General merchandise sales were up 2 per cent as group turnover rose by 12.7 per cent to £29.1 billion.
But food sales slipped 0.5 per cent and supermarket takings were down 1.8 per cent as underlying annual pre-tax profit fell 1 per cent to £581 million due to the impact of price cuts and cost inflation. Shares fell 16p to 263½p.
Chief executive Mike Coupe said its food business remained “resilient in a challenging market” while its rivals were rebuilding from “massively low bases”.
He would not make short-term decisions to boost sales but predicted the group would deliver “strong and steady profit growth” in three to five years. He said Sainsbury’s was on track to deliver £500million of savings by the end of this financial year, with a further £500million over the following three years.
He added: “The market remains competitive and the impact of cost-price pressures remains uncertain. However, we are well-placed to navigate the external environment.”
The latest Kantar Worldpanel data showed Sainsbury’s growing sales by 1.7 per cent in the 12 weeks to April 23, its best performance since June 2014, although stronger growth among its rivals meant its market share fell to 16.1 per cent from 16.5 per cent a year ago.
The overall grocery market grew by 3.7 per cent, the fastest since September 2013 and was worth nearly £1billion in additional sales to the sector.
Sales at German rivals Aldi and Lidl grew by 18.3 per cent and 17.8 per cent respectively to result in a combined market share of 11.3 per cent.
John Ibbotson, director of the retail consultancy Retail Vision, said: “What began as a bolt-on has turned into a lifeboat. The Argos acquisition is looking more inspired by the day.
“Incorporating the catalogue brand initially swallowed time and resources but it has begun paying dividends that flatter these otherwise insipid results and could prove crucial in future.”
Neil Wilson, of ETX Capital, said: “Sainsbury’s faces a squeeze on several fronts, from Aldi and Lidl crushing prices and stealing market share, while Tesco and Morrisons are both in the middle of strong turnaround programmes and Waitrose is continuing to mop up the top end of the market.”