​Sainsbury’s profit nosedives as Asda deal costs mount

Pre-tax profits dropped 41.6% to £239m as the costs of the failed mega-merger with Asda, which was decided on by the CMA last week, bit.

At an underlying level, pre-tax profits were up 7.8% to £635m in the year to March 9.

Group sales excluding fuel ticked up 0.4% to £26.96bn. Grocery was up 0.6% to £19.45bn while general merchandise was flat at £6.56bn. Clothing sales fell 0.8% to £953m. On a like-for-like basis, total sales nudged down 0.2%.

Channel growth was subdued with both convenience and supermarkets, which include Argos shop-in-shops in Sainsbury’s stores, growing at a slower rate than the previous year.

Supermarket sales grew at 1% compared with 2.1% the previous year, while convenience growth was 3.7%, down on 7.5%. Online growth just outstripped last year at 6.9% compared to 6.8%.

Investment and integration

Sainsbury’s completed a salary restructure during the year, which it billed as resulting in a “more efficient structure and more flexible colleague contract”.

The business accelerated its investment in technology, rolling out SmartShop self-scan to over 100 supermarkets, making Pay@Browse available in 162 Argos stores and so enabling customers to pay without queuing, and trialling digital Nectar in Wales ahead of a broader roll-out later in the year.

It also trialled the UK’s first checkout-free grocery store.

Chief executive Mike Coupe made no mention of the failed merger with Asda in his statement but hailed the completed integration of Argos, which the business set out in 2016.

The integration resulted in £160m in cost-saving synergies. There were 281 Argos stores in Sainsbury’s supermarkets at the year end and the business increased the number of Argos collection points in convenience stores to 207 and total physical Argos points of presence to 1,200 across the estate.

Coupe added: “We completed a major transformation of how we run Sainsbury’s stores and have made significant improvements to store standards in recent months, which remain a focus. We are also focused on reducing costs so that we can invest to make commodity products better value for our customers.

“We will increase and accelerate investment in the core business, investing to improve over 400 supermarkets this year. £4.7bn of our revenue now comes from our online businesses and we are increasing investment in technology.

“I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change.”