Sainsbury’s sees profits plunge as it starts £500m cost-cutting

Sainsbury’s attempts to slash costs by £500 million started in earnest on Thursday as the supermarket revealed it took a £203 million hit to its balance sheet from a series of store closures.

As a result, pre-tax profits fell to £9 million in the six months to September 21 from £107 million a year ago, although the company insists its plans are on track, with improvements to pricing and product ranges.

On Sainsbury’s preferred underlying measure, which strips out the one-off costs, pre-tax profits were £238 million – down 14%.

Sales during the period were flat at £15.1 billion. Like-for-like sales, excluding fuel, were down 1% during the period, although Sainsbury’s said a 1.6% fall in the first quarter of the financial year improved in the second – down just 0.2%.

Grocery was down 0.1% in the half – although the second quarter again improved, up 0.6% on a like-for-like basis.

The supermarket improved sales across its businesses, which also includes Argos, throughout the second quarter of the year.

General merchandise sales fell 2% in the second quarter, compared with a 3.1% fall in the first, and Clothing grew 3.3% in Q2 compared with a 4.5% fall in Q1.

Chief executive Mike Coupe welcomed the results, pointing out that his strategy to reduce prices and improve availability is working.

He said: “We are investing in hundreds of Sainsbury’s and Argos stores, introducing new products and services and continually improving service and availability. As a result, customer satisfaction has increased significantly year on year.”

He added that prices have been cut on 1,000 best-selling groceries, replacing the supermarket’s “Basics” range with new “Value” brands is progressing well, and 350 Taste The Difference products have been relaunched.

Sainsbury’s has also focused on new beauty halls, with 100 in stores by Christmas, and signed an agreement with healthy fast-food chain Leon to sell its products.

In September, Mr Coupe updated investors on his plans, which will see 125 stores close, including Argos branches, but will open even more.

Sainsbury’s said net store openings will be between 75 and 125 – although 80 of these will be Argos concessions opened in the grocer’s larger supermarket sites. Around 60 to 70 Argos standalone branches will close.

Ten large Sainsbury’s stores and 110 smaller ones will open under the plans, with 15 supermarkets and 40 convenience stores to close.

As part of new accountancy rules around how property values can be added to balance sheets, Sainsbury’s took the one-off hit of £203 million over the store closures.

However, this was lower than the £230 million to £270 million hit first predicted.