Sainsbury’s reports 9% fall in first-half profit

Losses over the summer at Argos, which Sainsbury’s bought in September 2016, particularly dented bottom-line earnings

Low-cost rivals to the Big Four established supermarkets in the UK – like Aldi and Lidl – have rapidly been gaining market share

Sainsbury's has reported a 9 per cent fall in profit for the first half of its financial year, becoming the latest retailer to cite rising costs and a challenging market environment.

The supermarket chain on Thursday posted a 17 per cent rise in underlying group sales to £16.3bn during the 28 weeks to 23 September, but profit before tax slipped to £251m from £277m in the same period a year earlier. Earnings per share declined by 22 per cent to 8.7p.

Losses over the summer at Argos, which Sainsbury's bought in September 2016, particularly dented bottom-line earnings, but Sainsbury's said that it was “well placed to navigate the external environment” going forward.

It said that since the acquisition, it had opened 102 Argos stores in Sainsbury's supermarkets.

“We continue to see a halo effect of one to two per cent on overall sales in supermarkets that offer an Argos store,” it said, adding that Argos like-for-like sales had grown by an average of around 20 per cent across the 15 Argos stores which have been in Sainsbury's supermarkets for more than a year.

Fiona Cincotta, senior market analyst at City Index, said that even though profit had come in slightly better than expected, the results were a “mixed bag” and “far from perfect”.

“On the bright side, Sainsbury's is running well ahead of its cost-saving targets following the Argos acquisition. But that progress has been offset by a significant slump in sales growth,” she said.

“Continued cost inflation, combined with intense competition from German discount retailers and a resurgent Morrisons, are clearly taking a toll on margins,” she added.

Inflation hit a five-year high of 3 per cent in September, dealing a blow to cash-conscious shoppers. And low-cost rivals to the Big Four established supermarkets – like Aldi and Lidl – have rapidly been gaining market share.