UK retailer Sainsbury, which earlier this week proposed a £15 billion merger with rival Asda, has failed to woo investors with full-year profits.
Underlying profit before tax, a measure that excludes distorting factors such as exchange-rate movements, was 1.4 per cent higher at £589 million, after £581 million in the previous year.
Group sales were nine per cent higher at £31.7 billion, against £29 billion the previous year, and the final dividend will be 7.1p a share, a 7.6 per cent rise on 6.6p the previous year. This will take the total dividend pay-out for the year to 10.2p, the same as last time.
Pressure on volumes
Items excluded from the underlying profit figure totalled a debit of £180 million, against one of £78 million in 2016-2017. Thus the statutory pre-tax profit figure was £409 million, against £503 million in 2016-2017.
It added: “In line with our expectations, consumers continue to shop more frequently across different channels and store formats, with convenience stores and on-line both showing strong growth.
“Discount and bargain retailers continue to open significant numbers of new stores and gain market share.”
It warned: “These trends continue to place pressure on volumes through the core supermarket format. However, we anticipate that supermarkets will remain an important channel for groceries.”
Mike Coupe, group chief executive, said: “We have accelerated the rate of change and innovation across the group and more customers are choosing to shop with us.” He added: “We are focused on making Sainsbury’s a destination of choice. We are clearly differentiated by the quality of our food.”
“Dynamic new player”
Underlying profit at Sainsbury’s Bank was 11 per cent high at £69 million, largely as a result of including the results of the financial services arm of Argos, the catalogue retailer acquired by Sainsbury in 2016. The company warned it expected the bank’s profits to “reduce significantly” in the short term, with both competition in banking and cheap funding from the Bank of England putting pressure on margins.
Sainsbury said: “In the biggest retail change programme we have ever undertaken, we are transforming the way we work in our stores.”
During the last six months, Sainsbury’s stock price has fluctuated from a low of 224.8p in November to a high of 305p on May 2. As this week ended, the Sainsbury share price was trading just slightly above 300p.
While the results were an important influence on the price, the real Sainsbury share news is the announcement on April 30 that Sainsbury and Asda, owned by US retail giant Walmart, announced an agreed merger to create “a dynamic new player in UK retail”. But the proposed deal seems certain to face regulatory scrutiny, given the combined market share would be more than 31 per cent, against just under 28 per cent for the next-largest group, Tesco.
Prior to the arrival of competitors such as discounters Aldi and Lidl, it would have been inconceivable that such a tie-up would have been permitted by the competition authorities. But, as the latest Sainsbury results show, the market has become much more competitive in recent years.