Sainsbury’s warns of profits amid ‘significant external pressures’

J Sainsbury warned that underlying profit would be below expectations this year amid “significant external pressures and uncertainties”, including cost inflation and squeezed household incomes.

The UK’s second-biggest supermarket on Thursday forecast underlying profit of between £630m and £690m. The consensus analyst forecast, as compiled by the group, was £703m.

Chief executive Simon Roberts said the main driver of the deterioration was lower sales volumes due to the partial return of buyer habits to pre-pandemic norms, but also the need to absorb cost inflation while maintaining competitive prices for customers.

“We can see early signs that customers are becoming more cautious, watching every penny,” he said. “But we’ve seen with Mother’s Day and Easter that people still want to buy key events.”

Like Tesco, which also cut its current year profit forecast this month, Sainsbury’s said it was raising prices at a slower pace than the wider market.

Britain’s big four supermarkets all want to avoid repeating the strategic mistakes of the financial crisis, when they ceded market share to discounters Aldi and Lidl in an attempt to maintain profit margins rather than cut prices.

Wm Morrison and Asda, both now privately owned, launched new rounds of price cuts on key items this week, while Sainsbury’s and Tesco pledged to match Aldi’s prices on hundreds of products.

The group’s shares fell about 3% in mid-morning trading on Thursday.

However, the supermarket added that it continued to expect strong cash flow and pledged to increase the proportion of profits paid to shareholders to 60% from around 53% currently. He added that he would consider share buybacks once the debt-to-earnings ratio declined.

The rise in cash yields comes amid periodic bid speculation in the sector following the private equity takeovers of Asda and Morrison’s. Sainsbury’s two biggest shareholders are the Qatar Investment Authority and Czech billionaire Daniel Kretinsky’s investment vehicle, which took a 10% stake last year.

The grocer reported underlying profit of £730million for the year to March, slightly ahead of the consensus forecast of £727million and double the previous year’s figure, the decreasing pandemic-related costs.

Same store sales decreased 2.3%, while total retail sales increased 4.6%. Good performance in groceries and clothing more than offset weakness in general merchandise, where sales fell in supermarkets and the separate Argos business compared to last year and pre-war levels. pandemic.

Roberts said this mainly reflected supply chain issues in areas such as consumer electronics which had improved in recent months, and that the restructuring meant Argos was “a completely different company” from 18 months ago.

The bank, which Sainsbury’s considered selling after a period of poor performance, returned to profit during the year and paid a £50million dividend to the parent group. However, the lender’s cost-income ratio, at 74%, remains above the target of 50% by 2024.

Shirlene J. Manley