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Sainsbury’s forecasts ‘strong’ profit growth as it wins customers from rivals

Sainsbury’s has said it expects to deliver “strong” profit growth over the year ahead after cheering surging food sales by reining in prices to help win customers from rivals.

The supermarket giant reported a better-than-expected 1.6% rise in underlying pre-tax profits to £701 million for the year to March 2.

But the figures came as the chain was hit by an embarrassingly-timed delivery service issue for online orders on Thursday.

Sainsbury’s said the problems were now resolved and only affected a “small number” of customers, yet it follows just weeks after the firm was left unable to take contactless payments due to a software update, leaving a raft of customers without home delivery orders.

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In its full-year figures, the UK’s second biggest grocery chain said total grocery sales increased 7.3% in the fourth quarter and 9.4% over the year, as it saw sales by volume pick up as inflation eased back.

This helped offset a tough market for general merchandise, with fourth-quarter Argos sales down 6.6% and clothing tumbling 11.7%.

The group said it was set for earnings to rise in 2024-25, pencilling in underlying retail operating profits of between £1.01 billion and £1.06 billion – up between 5% and 10%.

“We are confident of delivering strong profit growth in the year ahead,” it said.

“We expect to continue to grow grocery volumes ahead of the market, driving profit leverage.”

Grocery price inflation
Shoppers in the fruit and vegetables section of a branch of Sainsbury’s in south London (Aaron Chown/PA)

Simon Roberts, chief executive of Sainsbury’s, said moves to focus on food and keep prices affordable were “winning us customers from all our key competitors”.

He said: “We said we’d put food back at the heart of Sainsbury’s and that’s what we’ve done.”

Mr Roberts added: “We know it’s still tough out there for so many households and we’re doing all we can to save money right across our business to keep prices low – we have reduced 4,000 products over the last year alone.”

The figures come less than two months after Sainsbury’s said it would axe around 1,500 jobs under plans to cut costs by about £1 billion a year.

It plans to reinvest the cash savings into the business, with aims to boost the amount of space dedicated to food in its 600 stores, roll out electric car charging points, increase loyalty card offers and open another 75 convenience stores.

Its latest full-year figures showed that on a statutory basis, pre-tax profits slumped 15.3% to £277 million as it restructured its financial services arm and took a hit from not fully passing on interest rate rises to customers.

Group-wide sales on a like-for-like basis, excluding fuel, rose 4.8% in the fourth quarter, but this was down on the 7.4% increase seen in the previous three months and the slowest growth for 18 months.

Mr Roberts said food price inflation had fallen to just over 3% now and forecast it would continue stabilising and remain in low single digits this year.

But he said there was some cost pressures facing the group, such as staff wage bills after the near 10% rise in the National Living Wage, though this was balanced out by lower costs elsewhere, such as energy prices.

The group revealed there had been some cost and disruption to its fashion ranges from the Red Sea shipping woes in its fourth quarter to March, though it said it was working hard to offset the issues.

It is also taking measures with suppliers to work around crop issues after extreme wet weather in the UK, which is taking its toll on the supply of staples such as potatoes and onions.