Sainsbury's out of the red but earnings drop

Supermarket Sainsbury's swung out of the red with bottom-line profits of £548 million for the year to March 12, but said underlying earnings dropped 13.8% to £587 million.

Wednesday, 4th May 2016, 8:47 am
Updated Wednesday, 4th May 2016, 1:35 pm
Sainsbury store Pic: Anthony Devlin/PA Wire

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

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

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

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Mike Coupe, CEO of Sainsbury's

The group posted a 0.1 per cent 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”.

Takeover by Sainsbury's of Argos. PA/PA Wire

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 £6bn 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 £628m on the value of its property estate.

Sainsbury's Pic: Rui Vieira/PA Wire

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 Sainsbury’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.

Sainsbury’s is likewise stepping up its online business, announcing plans to double the number of stores offering a “drive thru” click and collect option for groceries.

Mike Coupe, CEO of Sainsbury's

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 per cent.

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 £225m in the year to March 12.

Sainsbury’s remains on track to trim costs by £500m by the end of 2017/18.

Takeover by Sainsbury's of Argos. PA/PA Wire
Sainsbury's Pic: Rui Vieira/PA Wire