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Sainsbury's warns of £500m COVID-19 hit as grocery sales jump 10%

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A Sainsbury's delivery van. Photo: Steve Taylor/SOPA Images/LightRocket via Getty

Sainsbury’s (SBRY.L) has warned that the COVID-19 pandemic is likely to knock half a billion pounds off its forecast profits this year.

The supermarket said on Wednesday it would likely take a £500m ($619m) hit to its profits, although it said this reduction would broadly be offset by business rates relief introduced by the government when the pandemic hit.

Sainsbury’s has hired 25,000 new workers since the crisis struck, expand its online operations and has installed 40,000 plexiglass screens in its shops to protect staff and workers — just some of the costs incurred as a result of the pandemic.

Rival Tesco (TSCO.L) warned last week that it expects to take a £840m profit hit due to COVID-19.

A woman wearing a mask and latex gloves shops in a branch of Sainsbury's in Bayswater, London, England. Photo: David Cliff/NurPhoto via Getty Images

Sainsbury’s warning on profits came as it reported a 10.5% jump in grocery sales over the last three months. Online sales surged 87%.

Sainsbury’s, which also owns Argos, said clothing sales fell 26.7% in the period. Total sales growth excluding fuel grew by 8.5% in the period. A slump in petrol sales meant that total revenue from all the company’s operations fell by 2.1%.

“The last four months have been extraordinary in so many ways and our colleagues have done an amazing job adapting our business,” said Simon Roberts, Sainsbury’s new chief executive.

“They have worked tirelessly to keep everyone safe, to help feed the nation and to support our communities and the most vulnerable in society.

“The coming weeks and months will continue to be challenging for our customers and our colleagues and we do not expect the current strong sales growth to continue. A number of the decisions we have made have materially increased costs but meant that we have done the right thing for our customers and set us up well for the future.”

Clive Black and Darren Shirley, retail analysts at stockbroker Shore Capital, said the update was “sensible and cautious.” They forecast pre-tax profit for Sainsbury’s this year “broadly flat” at £586m.

Shares in Sainsbury’s rose 1.6%.