Sainsbury’s Profits Falling

Published on: 23 Nov 2017

SupermarketSainsbury’s are seeing a fall of profits so far this year, with a 9% decrease in the first half.

The business has seen food transactions increase, but is struggling with price cuts, wage inflation, and the losses incurred by new acquisition Argos.

Growing year on year sales

The good news for the supermarket chain is that shoppers are buying more from them, with an increase in online grocery sales of 7.2%. Convenience store sales were also up by 8.2%.

The Argos stores have been introduced into 112 Sainsbury’s locations, a decision that may have no impact on food jobs but still had an impact on the group’s profits. Argos sales have fallen, and this means that the overall picture looks like a drop.

“We have delivered a good performance across the Group in the last six months, with more customers choosing to shop at Sainsbury in the first half than ever before. We are now three years into delivering our differentiated strategy and are seeing clear results,” ​ said group chief executive Mike Coupe. “We are adapting to meet customers’ changing shopping habits and, as a result, we are seeing positive momentum across the business. This half we have updated and improved 70 of our food ranges, covering around 40% of our food sales; improved our offer across 15% of our supermarket space and opened a further 73 Argos stores in Sainsbury’s, giving customers more reasons to shop at Sainsbury.”

He went on to add: “We continue to focus on offering our customers great value, supported by our removal of multibuys. Customers can shop at Sainsbury knowing they get good value every day without having to wait for products to be on promotion. We are also collaborating with suppliers and working hard within our own business to reduce our costs and limit the impact of price inflation on our customers.”

Analysts remain unconvinced

Falling ProfitsCoupe may talk a good game, but analysts are so far not convinced that the company’s falling profits are a positive sign. In fact, there are still worries that they have fallen too far.

Clive Black from Shore Capital pointed out that the inclusion of Argos stores was hoped to have better results. He said, “We see this performance as a little concerning as Sainsbury needs to deliver sound revenues to fully harvest anticipated synergies from the Argos acquisition and ongoing cost savings.”

Fiona Cincotta at City Index added: “Profit has come in ahead of consensus expectations but this is a mixed bag result that’s far from perfect. On the bright side, Sainsbury is running well ahead of its cost-saving targets following the Argos acquisition. But that progress has been offset by a significant slump in sales growth. Continued cost inflation, combined with intense competition from German discount retailers and a resurgent Morrisons, are clearly taking a toll on margins... The extra cash generated from cost savings will at least give management more firepower to invest in its offering in the lead up to Christmas. They'll need it.”

The hope from those in Sainsbury’s operational management jobs will now be that Christmas will save them. They will certainly need a significant boost from sales, with shoppers still turning to stores like Lidl which will help them to save a little money over the Christmas period.

Christmas SupermarketChristmas ranges are already in stores across the UK, and so we may have some idea by the end of November about who is going to win the Christmas race. If it isn’t Sainsbury’s, then there may be some head-scratching going on about how they will weather the Argos acquisition and upcoming seasons.