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Sainsbury's posts £548m bottom-line profit but remains under pressure

Published 04/05/2016

Sainsbury's reported pre-tax profits of £548 million against losses of £72 million the previous year
Sainsbury's reported pre-tax profits of £548 million against losses of £72 million the previous year

Sainsbury's posted a 13.8% fall in underlying annual profits as it remained under pressure amid a supermarket price war and said there was little sign of an end to tough conditions.

The UK's second biggest supermarket - which last month won a four-month takeover tussle to snap up Argos owner Home Retail for £1.4 billion - posted underlying pre-tax profits of £587 million for the year to March 12, down from £681 million a year earlier.

But on a bottom-line basis, it swung out of the red with pre-tax profits of £548 million against losses of £72 million the previous year, which had marked the company's first loss in a decade.

It said like-for-like sales fell for the second year running - down 0.9% - but cheered recent actions to make everyday prices lower for helping drive a turnaround in the fourth quarter.

The group posted a 0.1% rise in like-for-like retail sales excluding fuel for the final quarter - its first quarterly same-store sales growth for more than two years in March.

Mike Coupe, chief executive of Sainsbury's , said: "Ongoing pricing pressures and food price deflation have impacted our sales and operating margins."

He added: " The market is competitive, and it will remain so for the foreseeable future."

But he said the recent improvements in sales shows "customers are responding positively to our offer".

Sainsbury's has slashed prices on more than 1,900 products under an overhaul launched by Mr Coupe in November 2014 and the group pledged to keep cutting prices to remain competitive.

Its full-year results come just a month after Sainsbury's agreed the Home Retail takeover - a move the group said will create the UK's largest non-food store - a £6 billion giant, with around 2,000 stores, concessions and click-and-collect outlets.

The deal is set to complete in the third quarter of 2016.

Statutory profits came after the supermarket was hit the year before by a one-off write-down of £628 million on the value of its property estate.

But even when stripping out exceptional items, underlying profits have now seen double-digit falls for two years in a row.

The Big Four chains have struggled amid the threat from discounters Aldi and Lidl in recent years, although S ainsbury's said its fightback has helped it maintain its market share.

The group is also focusing on making regular prices lower on key products, announcing in February it would end multi-buy and buy-one-get-one-free promotions, while it also recently called time on its Brand Match pricing strategy.

It is likewise stepping up its online business, announcing on Tuesday plans to double the number of stores offering a "drive thru" click and collect option for groceries.

Mr Coupe hopes the Argos takeover will give it greater might against the likes of Amazon and the German discounters.

The group said in its annual results that it saw strong growth in clothing and general merchandise, while online grocery sales rose nearly 9%.

It added: "These results reflect the multi-product, multi-channel shopping experience customers are looking for today and our proposed acquisition of Home Retail Group plc will accelerate our strategy in this direction."

Mr Coupe, who took over from predecessor Justin King in July 2014, is also leading a programme to cut costs and made savings of £225 million in the year to March 12.

It remains on track to trim costs by £500 million by the end of 2017/18.

The latest industry data from Kantar Worldpanel showed Sainsbury's suffered its first fall in sales since July last year, down 0.4% .

But the chain outperformed its rivals and held its market share at 16.5% in the 12 weeks to April 24.

Sainsbury's shares fell more than 3%, despite full-year figures beating most analyst expectations.

The stock was under pressure as it also trimmed its full-year shareholder dividend payout by 8.3% to 12.1p.

Mr Coupe remained tight-lipped on trading since the fourth-quarter return to sales growth, but said the group was expecting food prices to keep falling "through the summer and beyond".

Prices have fallen by nearly 4% over the last two years, according to the group.

Mr Coupe said there was now "zero" difference in prices between the Big Four rivals, while prices relative to the discounters were also coming down.

The retail sector has suffered a gloomy start to the year, with the collapse of BHS into administration highlighting tough conditions on the high street.

Tesco also recently took the shine off its return to profit and sales growth as it warned the ongoing price war in the sector would put its first-half profits under pressure.

Analysts at Shore Capital said Sainsbury's was "doing the right things" amid difficult conditions by "lowering the prices and simplifying its offer to customers".

But they added: "We harbour concerns that Sainsbury may be complicating its business through the Argos acquisition just as its largest competitor is getting its act together."

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