Sainsbury’s half year profits drop amid grocery price war & investments

Sainsbury's half year

Sainsbury’s has revealed a sharp slow down in sales growth and a slump in half-year profits due to efforts to keep prices low in the face of inflation, labour costs, and investments in Argos.

The retailer reported underlying profit before tax of £251 million for the six months to September 23, compared to £277 million in the same period last year – but the company said this was still better than analysts’ predictions of £240 million.

Sainsbury’s added that the nine per cent drop in underlying profit before tax was due to the previously guided half-year Argos losses, pay rises, and its commitment to keep prices low amid inflation and an ongoing price war between the UK’s major grocers.

Meanwhile, statutory profit before tax plunged 40.8 per cent to £220 million – but Sainsbury’s said the £372 million statutory profit before tax recorded in the same period last year was due to the £116 million property gain from Nine Elms in London and the £98 million profit from the sale of its pharmacy business.

Falling sales across general merchandise and the Argos fascia also saw like-for-like sales slow down to 0.6 per cent growth in the second quarter, down from 2.3 per cent in the first quarter.

Despite this, total group sales for the first half was up 17 per cent from £13.92 billion to £16.31 billion, which Sainsbury’s attributed to the full consolidation of Argos.

The total sales was also boosted by a 1.6 per cent growth in overall like-for-likes for the first half.

The retailer recorded a 2.3 per cent climb in grocery sales during the first half, while clothing sales leaped 6.8 per cent.

However, general merchandise sales remained quite flat, dropping by just 0.1 per cent.

Sainsbury’s said there was “positive momentum” across the business as it pushed on with integrating the Argos and Habitat fascias, which it acquired for £1.4 billion from Home Retail Group in September last year.

The retailer added that it remained focused on its strategy and was on track to achieve full-year expectations of £572 million in underlying profit before tax.

Chief executive Mike Coupe said the market remained “competitive”, but insisted the company was seeing “clear results” from its three-year plan.

“We have delivered a good performance across the group in the last six months, with more customers choosing to shop at Sainsbury’s in the first half than ever before,” he said.

“We are now three years into delivering our differentiated strategy and are seeing clear results.”

Last month, Sainsbury’s announced 2000 jobs would be made redundant, mainly from human resources and payroll staff, adding to 1000 head office job cuts announced in August.

The redundancies form part of the company’s efforts to cut another £500 million of costs as part of its three-year strategy.

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