Profit fall at Sainsbury’s for third straight year

Chain bolstered, however, by Argos acquisition

Sainsbury’s has warned over a hit from falling consumer confidence after it suffered its third year of falling profits.

The supermarket group said a squeeze on household spending was impacting general merchandise and clothing sales growth.

Shares fell early after it reported an 8.2% drop in bottom-line profits to £503 million for the year to March 11, while underlying profits fell for the third year in a row, down 1% to £581m.

Sainsbury’s revealed profits were knocked as it sought to keep prices low amid cost pressures from the Brexit-hit pound and higher staff wages.

This was only partly offset by a £77m boost from Argos, which the chain snapped up last year when it took over Home Retail Group for £1.4 billion.

Sainsbury’s is forecasting cost price inflation of 2% to 3% in the year ahead.

Chief executive Mike Coupe said the past year had been “one of the most interesting and challenging and volatile years in my working lifetime”.

Sainsbury’s said it had 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.

But the higher costs, together with seasonal losses expected from Argos, are expected by the group to see firsthalf profits in the new financial year come in lower than the second half.

Mr Coupe insisted its food business remained “resilient in a challenging market”.

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

Group sales, including VAT, surged 12.7% thanks to a robust contribution over the final six months from the Argos business, which notched up a 4.1% sales rise.

Mr Coupe said the group was “pleased” with its progress since buying Argos, having already opened 59 Argos Digital stores in its supermarkets, which are were performing well.

“We are therefore accelerating our plan to open a total of 250 Argos Digital stores in Sainsbury’s supermarkets and will deliver our £160 million EBITDA synergy target by March 2019, six months ahead of schedule.”

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

However, Kantar said faster growth from its main rivals saw Sainsbury’s lose market share over the quarter, down from 16.5% at the same juncture last year to 16.1%.