Sainsbury's profits sink as sales slow

The supermarket chain said higher wages and losses at newly-acquired Argos were weighing on its bottom line

Sainsbury’s has laid bare the challenges facing food retailers after profits tumbled by 40pc while sales slowed amidst inflationary pressures and higher wage costs.

The grocer highlighted an increasingly competitive environment as it revealed that same-store sales had slowed to just 0.6pc in the three months to September, compared to more robust 2.3pc growth in the first quarter.

Mike Coupe, chief executive, blamed a “depressing August” for the sales slip. “When the sun shines we tend to do better, and the weather was good last year”, he said.

Sainsbury’s profits were dragged down to £220m after the company missed a £116m boost from property valuations and £98m proceeds from the sale of its pharmacy business that it benefitted from last year.

The supermarket chain also had to absorb losses at Argos, which traditionally loses money in the first half of the year before turning a profit over the crucial Christmas trading. Underlying profits fell by 9pc to £251m.

Clive Black, analyst at Shore Capital, said that the sales performance was “a little concerning as Sainsbury needs to deliver sound revenues to fully harvest anticipated synergies from the Argos acquisition and ongoing cost savings".

Sainsbury’s is still targeting £160m of synergies from its Argos takeover and is ramping up the number of openings of supermarket concessions to have 250 by the end of the year. “I am curious about this Christmas because with 165 Argos stores we have a different dynamic in our stores”, the retail boss said. “We are very well set-up but I have a bit of nervous anticipation", he added.

Mike Coupe, Sainsbury's boss, in front of an Argos store

Mr Coupe suggested that he would not be returning to the acquisition trail imminently having shelved plans for a takeover of Nisa in August. The Sainsbury’s boss said that a wholesale deal, like the one Morrisons has struck with McColls, would still be of interest, or expanding its franchise business.

The ‘Big Four’ supermarkets are grappling with rapidly changing shopping habits which has meant consumers are shunning the big, weekly trips to stores in favour of frequent visits to convenience shops or online. Sainsbury’s said that grocery online sales grew by 8pc during the period while its convenience business grew by 10pc.

In response to rising cost pressures Sainsbury’s has already announced that it will slash 2,000 jobs as it targets £500m of savings.