SUPERMARKET group Sainsbury’s has revealed a dip in underlying profits and revenue after introducing price cuts in a grocery environment it called “competitive and deflationary”.
Underlying profit before tax was down 13.8 per cent to £587 million for the year ending March 12. Group sales were down 1.1 per cent to £25.8 billion.
The slip in underlying profit is a result of margins being squeezed as supermarkets attempt to counter the impact of German discounters Aldi and Lidl. For its part, Sainsbury has reduced its promotional activity to focus on a simpler strategy of regular pricing.
Mike Coupe, chief executive of Sainsbury, said: “We are making good progress against the strategy we outlined to shareholders in November 2014 [to invest £150m a year in price cuts for three years]. We continue to outperform our main peers and maintain market share in a competitive, deflationary environment.”
Its sales dipped 0.4 per cent in the last 12 weeks, according to the latest Kantar Worldpanel figures, but its market share remained steady at 16.5 per cent as rival suffered.
The group reported bottom line pre-tax profit for the year of £548 million, marking a return to profit after a £72m loss in 2015, when the company had to writedown £628m on the value of its property.
Volume and transaction numbers were both up and the group’s convenience and online operations continued to outperform supermarkets. This trend was reflected in the company’s store investment for the year, which saw just six supermarkets opened compared with 69 convenience stores. In Scotland nine convenience stores opened, giving the company a total of 97 stores north of the border, 35 of which are supermarkets.
Total store investment was down to £540m from £950m last year. The group said it continued to manage its costs and capital expenditure carefully. It made operating cost savings of £225m this year and Mr Coupe said it was on track to deliver a three-year £500m cost saving programme by the end of 2017/18.
The company, which is in the process of buying Argos owner Home Retail Group, saw non-food sales grow by 3.5 per cent, led by clothing, which was up 8.5 per cent.
Steve Clayton, head of equity research, Hargreaves Lansdown said: “Sainsbury’s results reveal a picture of steadily improving underlying sales trends, with volumes and transaction numbers rising, but still offset by a tough food price deflationary backdrop… for all the group’s efforts, profitability is still down year on year.”
Mr Coupe added: “The market is competitive, and it will remain so for the foreseeable future. We believe we have the right strategy in place and are taking the right decisions to achieve our vision to be the most trusted retailer where people love to work and shop.”
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