Sainsbury's profits slump 10% as weak pound causes costs surge

Supermarket says impact of sterling's crash is 'uncertain'

The group has been battling an intense price war as well as post-referendum price rises (Rex)

Sainsbury's profits slumped 10 per cent and the supermarket warned of an even tougher second half as costs surge after the slump in the value of the pound. The company’s shares fell 7 per cent on Wednesday.

The Argos owner said it would still reduce shop floor prices but warned the pound’s impact was uncertain as it prepares for more expensive imports.

Chief executive Mike Coupe said the group had made “good progress” on its turnaround strategy amid “challenging” conditions.

But the group added: “The market remains competitive and pricing pressures continue to impact margins. The full impact of the devaluation of sterling on retail prices is as yet uncertain.”

Like-for-like supermarket sales dropped 1 per cent in the first half, with the sector still battling an intense price war.

Further pressure has been heaped on supermarkets in recent weeks as suppliers begin to demand price increases. Tesco and Unilever battled in October over the price of Marmite, among other products. Other suppliers including Birds Eye and Walkers have also sought to increase prices, blaming increased

Sainsbury's said it was on track to make savings of £500m by 2017/18 and set a new three-year target to slash costs by another £500m from 2018/19.

Sainsbury's reported underlying pre-tax profits of £277m for the six months to September 24, down from £308m a year earlier. Bottom line pre-tax profits rose 9.7 per cent to £372m.

It said second-half profits excluding Argos and Habitat owner Home Retail Group – snapped up earlier this year for £1.4bn – were expected to be lower due to “continued price investment and a step-up in cost inflation in the second half”.

Full-year results overall are set to be in line with market expectations thanks to a boost of between £55m and £75m from Home Retail in the second half.

The group already has 22 Argos digital stores in its supermarkets and plans to extend this to 30 by Christmas, as well as creating a further 30 Argos digital collection points in its supermarkets.

It hopes to ultimately roll out 200 new digital collection points overall across its stores, where customers can collect Tu clothing, eBay and DPD parcels.