Pressure mounts on Sainsbury’s as profits plummet

Pressure has mounted on UK retailer Sainsbury’s after it reported pre-tax profits plummeting 42% to £239 million with like-for-likes down 0.2% in the year to March.

The financial results come hot on the heals of the demise of the proposed merger with Wal-Mart owned Asda, which was scuppered by the Competitions and Markets Authority (CMA) last week, amid concerns that UK consumers would be worse off if the two giant retailers combined forces.

The UK retailer, which has underperformed the UK grocery market for much of the financial year, saw a steep decline in the final three months of the year, with like-for-like groceries down 0.6% (compared with 0.4% rise in the previous quarter) with overall grocery like-for-likes for the year up 0.6%, to £19.45 billion.

Group like-for-like sales fell 0.2pc in the year to March.

However the retailer received a £68m boost from its acquisition of Argos, which enabled it to report underlying retail operating profits (excluding exceptional items) up 10% or of £67m in the year to £692m.

Underlying pre-tax profits were slightly above expectations, at £635 million, a rise of 7.8%, and group sales rose 2.1% overall, while net debt was £222 million lower, with the £160 million Argos synergies delivered nine months ahead of schedule, enabling Group CEO Mike Coupe to provide a more upbeat narrative.

Sainsbury’s Group CEO Mike Coupe

He argued that the increased in profits, reduction of net debt and increase in the dividend was “testament to the hard work of colleagues across the business” and he thanked them for their commitment during a “year of change”.

He also said he was confident in the strategy and clear on what the team need to do to evolve the business “in a highly competitive market where shopping habits continue to change.”

CMA body-blow

Convenience and online groceries saw growth of 3.7% and 6.9% respectively and it said it was accelerating our investment in technology, including trialling a digital version of its loyalty card, Nectar and he UK’s first checkout-free Grocery store.

Retail analyst Clive Black of Shore Capital said the senior management team now had to get back to “the day job” without “the smoke screen on underlying performance that a merger combination would have brought”.

“Strategically speaking we should not under-estimate the strength of the body blow that the CMA has delivered to Sainsbury’s investment thesis and its senior management team,” he said.

He also pointed to Asda transaction-fee costs of around £46m.

Wider grocery market

Yesterday, Kantar reported that the retailer had reclaimed its position as the UK’s second largest supermarket, despite a sales decline of 1.2% – the only supermarket to see a sales decline amid strong sales boosted by a record-breaking Easter. It came as the wider grocery sector grew at its fastest rate this year. 

Fraser McKevitt, head of retail and consumer insight at Kantar, noted however that there was strong double-digit growth online from Sainsbury’s, coinciding with the opening of its first mobile-only payment store in central London.

Grocery inflation now stands at 1.4%† for the 12-week period ending 21 April 2019.