Profits dented at Sainsbury’s despite boost from Argos

● Like-for-like supermarket sales off 0.6% as inflation pressures mount up

Sainsbury’s is braced for a continuing squeeze between the discounters and strong turnarounds at Big Four supermarket rivals Tesco and Morrisons after a slide in annual profits jolted the City yesterday.

Shares in the company shed 5.7 per cent, one of the biggest fallers in the FTSE 100 board, as Sainsbury’s chief executive Mike Coupe said: “The market remains competitive and the impact of cost pressures remains uncertain.”

Sainsbury’s same-floorspace supermarket sales fell 0.6 per cent in the 12 months to 11 March, leading to an 8.2 per cent fall in pre-tax profits to £503 million, down from £548m in the previous year. The full-year dividend is cut 15.7 per cent to 10.2p.

Neil Wilson, market analyst at ETX Capital, said: “Sainsbury’s faces a squeeze on several fronts. On the one side, there are discounters like Aldi and Lidl crushing prices and stealing market share, while Tesco and Morrisons are both in the middle of strong turnaround programmes that are leaving Sainsbury’s trailing.”

Profits fell 1 per cent, excluding exceptioanals, to £581m as it sought to keep prices low amid cost pressures from the Brexit-hit pound, which offset a £77m boost from the recently bought Argos chain.

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

Coupe said: “We have opened 59 Argos Digital stores in Sainsbury supermarkets and they are performing well. We are therefore accelerating our plan to open a total of 250 Argos Digital stores in Sainsbury’s supermarkets.”

It was the third consecutive year of falling underlying annual profits for the group despite its convenience store sales rising 6 per cent, and online groceries up 8 per cent.

The retailer warned that it expects cost price inflation of 2 per cent to 3 per cent over the financial year ahead, with the most impact expected on sales of general merchandise and clothing .

George Salmon, equity analyst at financial adviser Hargreaves Lansdown, said: “One may not think that Argos and Sainsbury are the most natural of bedfellows, but the early signs are that for Argos at least, the partnership is working.

“Argos sales are on a much better trajectory since the chain came on board, with particularly impressive results from the Digital stores that have sprung up in Sainsbury’s vast superstores.

“However, Sainsbury’s ‘bread and butter’ remains grocery. Discounters like Aldi and Lidl are still making gains at the expense of the UK’S more established names, forcing prices downwards across the board. Unlike its domestic rivals Tesco and Morrisons, like-for-like sales at Sainsbury’s have remained stubbornly negative recently. Lower prices, weaker margins and a falling market share is not a good combination.”