Sainsbury’s warns of more tough trading after 10% fall in first-half profits

Sainsbury's chief executive Mike Coupe.
Photo: Sainsbury's/PA Wire

Sainsbury's chief executive Mike Coupe. Photo: Sainsbury's/PA Wire - Credit: PA

Sainsbury’s has posted a 10% fall in half-year profits and warned of an even tougher second half for its supermarket chain in the face of surging costs.

The group said it would continue to cut prices for shoppers, but cautioned that the impact of the plunging pound on prices was “uncertain” as it braces for an increase in costs over its second half.

Sainsbury’s reported underlying pre-tax profits of £277m for the six months to September 24, down from £308m a year earlier, although bottom line pre-tax profits rose 9.7% to £372m.

It said second-half profits, excluding Argos and Habitat owner Home Retail Group, which it acquired earlier this year for £1.4bn, were expected to be lower due to “continued price investment and a step-up in cost inflation in the second half”.

Full-year results overall are set to be in line with market expectations thanks to a boost of between £55m and £75m from Home Retail in the second half.

Sainsbury’s chief executive Mike Coupe said the group had made “good progress” on its turnaround strategy against “challenging” trading conditions.

But the group added: “The market remains competitive and pricing pressures continue to impact margins. The full impact of the devaluation of sterling on retail prices is as yet uncertain.”

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Sainsbury’s saw profits come under pressure after like-for-like supermarket sales dropped 1% in the first half, with the sector still battling an intense price war.

The falling pound is putting even more pressure on the big players as suppliers begin to demand price increases, with Tesco and Marmite group Unilever recently embroiled in a spat over prices.

Sainsbury’s said it was on track to make savings of £500m by 2017-18 and set a new three-year target to slash costs by another £500m from 2018-19.

The group already has 22 Argos digital stores in its supermarkets and plans to extend this to 30 by Christmas as well as creating a further 30 Argos digital collection points in its supermarkets.

It hopes to ultimately roll out 200 new digital collection points overall across its stores, where customers can collect Tu clothing, eBay and DPD parcels.