Profits rise again for Sainsbury's

Wednesday 07 May 2014

Outgoing Sainsbury's boss Justin King has capped his decade in charge of the supermarket by announcing a ninth successive year of annual profits growth, but warned of tough times ahead. Underlying profits before tax rose 5.3% to £798 million in the year to March 15, but like-for-like sales for the period were almost flat, edging up 0.2%.

Mr King, who will hand over the reins of the grocer to commercial director Mike Coupe in July after 10 years in charge, said a focus on quality, affordable own-brand products had helped Sainsbury's succeed in a tough retail environment. But he warned: "While the general economic outlook is showing some signs of improvement, conditions in the food retail sector are likely to remain challenging for the foreseeable future as customers continue to spend cautiously."

Mr King's swansong as chief executive has been marred by the grocer's most recent set of periodic trading figures which showed a fall in like-for-like sales after 36 consecutive quarters of growth.

Profits are expected to decline next year after Mr King's departure with the supermarket warning that the current year will again see a nearly flat like-for-like sales performance.

Sainsbury's said the latest update was not expected to alter analysts' expectations of a fall in underlying profits to £762 million.

The results come as the Big Four supermarkets - also including Tesco, Asda and Morrisons - look set for a price war as they try to head off the threat of discounters Aldi and Lidl which have been gnawing away at their market share.

Sainsbury's acknowledged that the behaviour of "savvy" shoppers topping up their weekly supermarket visit with a trip to discounters or convenience stores had become "entrenched", but appeared to hold back from plunging into a discount spree.

It said: "The UK grocery market remains intensely competitive and the lack of volume growth means that retailers must work harder than ever to attract and retain customers.

"The growth of the discounters has put pressure on the Big Four and contributed to a high level of price investment across the sector, particularly on everyday food items, and conditions are likely to remain challenging for the foreseeable future.

"However, consumers continue to value quality, freshness and provenance when choosing where to shop.

"Sainsbury's has a clearly differentiated offer, based on quality own-brand products, sourced with integrity, priced fairly and labelled transparently, and supported by a great in-store experience."

Sainsbury's said its premium Taste the Difference range achieved double digit growth with more than £1.1 billion in annual sales. Sales of its "basics" range declined but the brand has been relaunched.

It took a £92 million hit to its balance sheet after scrapping planned supermarket developments - though it still opened 13 supermarkets during the year and extended six, adding a million square feet of space.

There is now a much greater focus on its network of smaller convenience stores, with 91 opened in the year, taking their total number above the number of supermarkets for the first time, and reaching sales of £1.8 billion.

Meanwhile annual online grocery sales, up 12%, have surpassed £1 billion, while general merchandise and clothing sales were growing at twice the rate of food, with the Tu clothing brand generating revenues of around £750 million.