Sainsbury's profits drop as price investment and rising labour costs hit bottom line

The supermarket giant said statutory pre-tax profit tumbled 40.8% to £220m during the 28 weeks to September 23.

Sainsbury’s said that pre-tax profit in the comparable period last year benefitted from an £111m property gain from its Nine Elms development and £98m from the sale of its pharmacy business.

On an underlying basis - Sainsbury’s preferred profit measure - which stripped out £31m of costs included within its statutory reporting, pre-tax profit fell 9% to £251m. This was ahead of analysts’ forecasts of £240m.

Group sales excluding VAT increased 15.8% to £14.6bn during the period, boosted by a 1.6% climb in like-for-likes excluding fuel.

Despite the fall in profits, Sainsbury’s hailed “positive momentum” across the business as it presses ahead with plans to integrate the Argos and Habitat businesses, following its £1.4bn acquisition of Home Retail Group last September.

Sainsbury’s said total grocery sales climbed 2.3% during the half, while clothing sales advanced 6.8%.

General merchandise sales were broadly flat, inching down 0.1%.

Sainsbury’s said “more customers than ever” shopped with the business during the 28-week period as its focus on quality, price and innovation drove growth in the number of grocery transactions.

Sales from its online food business rose 7.2% year-on-year, while its Sainsbury’s Local convenience arm registered an 8.2% uplift.

Argos integration

Sainsbury’s has already launched 112 Argos shop-in-shops inside it larger supermarkets and will operate 165 by Christmas.

It is also rolling out click-and-collect for Argos and Tu clothing orders to 100 Sainsbury’s Local sites.

Sainsbury’s said it was on track to deliver its £160m EBITDA synergy target from the Argos deal six months ahead of schedule.

The grocer added that it had exceeded its cost savings target and will now have delivered £540m in the three years to the end of 2017/18. The total includes £100m delivered during the first half of its current financial year.

It aims to save another £500m in the three years from 2018/19.

“We are adapting to meet customers’ changing shopping habits and, as a result, we are seeing positive momentum across the business”

Mike Couple, Sainsbury’s

Last month, Sainsbury’s lifted the lid on plans to axe on 2,000 jobs by scrapping 1,400 payroll and human resources roles across its store estate, with a further 600 staff to be lost across Argos and its banking arm.

Sainsbury’s big four rivals Tesco and Asda are also streamlining their workforces as the sector grapples with the impact of food price inflation, the national living wage, the apprenticeship levy and rising business rates.

But Sainsbury’s insisted it is “well placed to navigate the external environment” and remained on track to delivery full-year profits “in line” with market consensus.

The grocer’s boss Mike Coupe said confidence in its strategy had been buoyed by “seeing clear results” over the past year.

“We are adapting to meet customers’ changing shopping habits and, as a result, we are seeing positive momentum across the business,” Coupe said.

“We continue to focus on offering our customers great value, supported by our removal of multi-buys. Customers can shop at Sainsbury’s knowing they get good value every day without having to wait for products to be on promotion.

“We are also collaborating with suppliers and working hard within our own business to reduce our costs and limit the impact of price inflation on our customers.”