Asda has reported a double-digit drop in profits over the last year, citing a “challenging” consumer environment ahead of its landmark tie-up with rival Sainsbury’s.
Throughout 2017 the grocer saw like-for-like sales edge up 0.5 per cent, a significant improvement on the 5.7 per cent drop seen a year earlier.
Despite this, investments in price reductions in an attempt to regain market share resulted in a 13 per cent drop in operating profits to £735.4 million.
Its market share also fell 0.3 per cent to 15.4 per cent.
It pushed ahead with physical expansion throughout 2017 with five supermarkets, three megastores and an online distribution centre.
“During the year momentum returned, driven by a series of planned investments in lowering price, further improving quality and innovation in our own brand ranges and providing an even better shopping experience whether in store or online,” chief executive Roger Burnley said.
“Our customers have responded well to this strategy and the momentum of 2017 has continued into the first quarter of 2018.”
The lacklustre results come just weeks after Asda’s plans for a £12 billion merger with Sainsbury’s was announced.
Though the deal is yet to receive the green light from the Competition and Markets Authority (CMA), its combined strength will challenge the dominance of Tesco and represent the biggest retail entity in the UK.
In order to obtain approval from the CMA, analysts expect Sainsbury’s and Asda will be forced to close down or sell of scores of stores, especially in areas where they overlap.
Sainsbury’s-Asda’s revenues would also be £51 billion thanks to network of 2800 Sainsbury’s, Asda, Habitat, Argos and George stores.