Sir Alistair Grant, chairman, said the market remained fiercely competitive although he believed that gross margins had stabilised.
But he warned that it was 'too early to predict with confidence the resumption of profit growth'.
Argyll reported a 13 per cent drop in pre-tax profits to pounds 361.8m on sales 9 per cent ahead at pounds 5.98bn in the year to 2 April. While that was largely caused by a pounds 37.1m increase in the depreciation charge as the group decided to write down the value of its superstores, profits at Lo- Cost, the discount chain, fell sharply while margins at Safeway were squeezed.
A review of options for Lo- Cost could mean all or part of the business - whose 270 stores are mainly in Lancashire, Wales and the Midlands - could be sold.
Argyll would not disclose Lo-Cost's results, although it was responsible for the 20 per cent drop in profits from the group's other food activities to pounds 40.7m as margins slumped from 4.9 per cent to 3.9 per cent. Presto, the other component of that division, continued to perform well.
Profits at Safeway, which accounts for more than 80 per cent of sales, rose 7 per cent to pounds 361.2m, largely due to new openings, which chipped in 11.6 per cent of the 12 per cent sales increase to pounds 4.9m.
Argyll's capital spending will drop from pounds 541m last year to not more than pounds 500m in the current year, and less than pounds 400m in 1996/7. Last year's spending pushed borrowings up to pounds 263m from pounds 42m, but Mr Smith said it expected to be cash-neutral within two to three years.
Earnings per share were 22.6p, down from 27.1p, but the dividend was increased by 6 per cent to 11.5p via a 7.75p final. The shares closed 9.5p lower at 239p.Reuse content