Business

Sainsbury’s profit falls and sales growth slows

British consumer spending is also under pressure from rising inflation

Sainsbury’s chief executive Mike Coupe said the group will have 165 Argos stores open in supermarkets by Christmas

Thu Nov 9 2017 - 09:09

British supermarket Sainsbury’s reported a 9 per cent fall in first half profit on Thursday and a slowdown in quarterly sales growth as intense competition in the grocery market took its toll.

Sainsbury’s did, however, say it had exceeded its cost savings target and forecast profits for the full 2017-18 year would be in line with the current market consensus.

Sainsbury's and major rivals - clear market leader Tesco, Asda and Morrisons - are grappling with the rapid growth of discounters Aldi and Lidl.

They also have to cope with more expensive food imports due to a fall in the value of sterling since Britain voted to leave the European Union.

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British consumer spending is also under pressure from rising inflation, subdued wage growth and ongoing uncertainty in the UK economy.

Sainsbury's, which acquired electrical goods retailer Argos in September 2016, said it made an underlying pretax profit of £251 million ($329.7 million) in the 28 weeks to September 23rd - ahead of analysts' average forecast of £241 million but down from £277 million made in the same period last year.

The outcome reflected efforts to keep prices low despite rising inflation, higher staff wages and inclusion of the seasonally loss-making Argos business in the results, partly offset by synergies and cost savings.

Second quarter retail like-for-like sales rose 0.6 per cent, excluding fuel - a slowdown from growth of 2.3 per cent in the first quarter.

Analysts at Bernstein said the second quarter outcome was 1.3 per cent below consensus expectations.

“The fall in like-for-like sales growth is coming from both grocery and general merchandise,” they said.

Sainsbury's chief executive Mike Coupe said the group will have 165 Argos stores open in Sainsbury's supermarkets by Christmas and was on track to deliver £160 million of synergy benefits from the acquisition six months ahead of schedule.

Sainsbury’s had also exceeded its cost savings target and would deliver £540 million over three years ending 2017-18. At least a further £500 million is targeted over three years from 2018-19.

“While the market remains competitive, we are well placed to navigate the external environment and we remain focused on delivering our strategy,” said Coupe.

Prior to Thursday’s update analysts’ average forecast for 2017-18 pretax profit was £572 million, down from £581 million in 2016-17.

-Reuters

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