Sainsbury's profits fall amid 'challenging market'

The firm’s chief executive said the impact of cost pressures remains ‘uncertain’ but added the group was ‘well-placed to navigate the external environment’

Total sales for the group rose 12.7 per cent mainly because of the performance of its Argos outlets (Getty)

Sainsbury’s has warned over a “challenging” market and price pressures as it posted a 8.2 per cent decline in annual profits.

The retailer posted pre-tax profits of £503m for the year to 11 March, down from £548m the previous year.

Like-for-like sales for the year were down 0.6 per cent.

Retailers are expected to have a difficult year amid cost rises due to the post-Brexit slump in the value of the pound.

Sainsbury’s, the UK’s second biggest supermarket, on Wednesday said the impact of cost pressures remains “uncertain” but added it was “well-placed to navigate the external environment”.

Mike Coupe, the chief executive of Sainsbury’s, said: “This has been a pivotal year and we have made significant progress delivering and accelerating our strategy. Sainsbury’s Group offers customers market-leading product choice, value and convenience, whenever and wherever they shop with us.

“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.”

Mr Coupe added that the group was “pleased” with its progress since buying Argos last year, having already opened 59 Argos Digital stores in its supermarkets, which he said were performing well.

Total sales for the group rose 12.7 per cent mainly as a result of the Argos contribution.

Sainsbury’s is also accelerating plans to open 250 Argos Digital stores.

Shares in Sainsbury’s fell almost 5 per cent to 266.13p on Wednesday.

John Ibbotson, director of consultancy Retail Vision, said that for the “embattled” Sainsbury’s, the Argos acquisition is “looking more inspired by the day” but this should not distract from the weaknesses of Sainsbury’s core grocery business.

“The convenience and online offerings are a bright spot in an otherwise challenging picture. Food price inflation has slashed margins and Sainsbury’s continues to lose market share to both Tesco and Morrisons,” he said.

“The brand’s much-vaunted turnaround plan has been slower to show results than those of its rivals, who have successfully staunched their losses with aggressive price cuts and structural reforms.”

“Argos has so far proved an effective ‘get out of jail’ card for Sainsbury’s. But with inflation biting into consumer spending and the latest retail sales figures showing that the consumption boom is waning, Sainsbury’s must get its core business in order before it comes off its catalogue crutches.”

Neil Wilson, senior market analyst, at ETX Capital said Argos is delivering the top-line growth “that keeps the group above water”.

“Sainsbury’s sales are declining and it is losing market share. That’s a reflection of the performance of key rivals – Sainsbury’s did very well when Tesco was on its knees but is now facing its own challenges. In particular, as Tesco grows sales again it’s coming at the expense of Sainsbury’s,” Mr Wilson said.