Supermarket giant Sainsbury’s has reported a sizeable fall in profits and warned that the Brexit-hit pound could damage its prospects further in the year ahead.
The supermarket has been squeezed by a combination of rising inflation and fierce competition among grocers to keep food prices down for shoppers.
Overall, Sainsbury’s profits fell 8.2 per cent to £503million in the year to March, down from £548 million the previous year.
Under pressure: Supermarkets such as Sainsbury’s are trying to keep prices down for shoppers even as producer cost pressures mount due to the fall in the pound
The supermarket chain’s chief executive Mike Coupe told the BBC that with rising inflation it is ‘difficult to predict’ when prices might go up and that the supermarket is working with suppliers to avoid price rises on the shelves.
He said: ‘We’ve done a brilliant job of reducing the impact of the currency movements on our customers, so we’ve managed to work with our suppliers, and indeed, reduce our own costs.
‘We’ve seen a minor tick-up in inflation, but we’ll continue to look to … not pass on the price increases that we see coming through.’
Sainsbury’s shares were trading down 2.2 per cent at 273.3p, at 9am.
Delivering the results, Coupe said: ‘Food is the core of our business and we are committed to helping customers live well for less. Our food business remains resilient in a challenging market and we continue to innovate in quality and to invest in price.’
Coupe added that ‘the market remains competitive and the impact of cost price pressures remains uncertain’ but the group was ‘well placed to navigate the external environment’ and ‘focused on delivering our strategy’.
Sainsbury’s clocked up a 0.6 per cent fall in like-for-like over the last year, but overall sales were boosted by newly-acquired Argos.
These are the first results to include figures from the Argos and Habitat brands, which were bought for £1.4billion last year.
As a result overall group sales increased 12.7 per cent.
Merging the operations has produced cost savings of £130million and a profit contribution from Argos of £77million.
Coupe said: ‘We have opened 59 Argos Digital stores in Sainsbury’s 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.’
George Salmon, analyst at 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.’
Boss Coupe said the group was ‘pleased’ with its progress so far since snapping up Argos
Sainsbury’s said it made cost savings of £130million as part of a three-year target to cut £500million by the end of 2017/18.
It also outlined aims to slash costs by another £500million 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, the group added.
Neil Wilson, at ETX Capital, said: ‘Not a great set of numbers from Sainsbury’s this morning but largely in line with expectations.
‘While the core brand seems to be struggling and losing ground to rivals, recently-acquired Argos is delivering the top line growth that keeps the group above water.
He added: ‘As previously noted, Sainbury’s faces a squeeze on several fronts. On 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.
‘Waitrose is continuing to mop up the top end of the market, enjoying an unbroken run of growth in market share since 2009.’
Sainsbury’s investors saw a cut to its payouts confirmed in line with its policy of paying out a dividend that is twice covered. The full-year dividend paid to shareholders has been reduced by 15.7 per cent to 10.2p a share.