Sainsbury's is facing a double whammy of falling consumer confidence and rising costs
Companies: J Sainsbury plc
One of the UK's big four supermarkets, Sainsbury's, has warned investors of challenging market conditions and pricing pressure as it reported an 8.2% fall in annual profits despite growing revenues.
Sainsbury's said on Wednesday that pre-tax profits for the full-year to 11 March were £503m, down a worrying 8.2% on the previous year's total of £548m. However, overall revenue hit £29bn, a 12.7% increase year-on-year.
The company, which also owns Argos, said general and clothing sales had fallen due to a decline in consumer confidence and a severe slowdown in real pay growth. Slowing wages is affecting customer shopping habits, with sales falling 1% (in stores open more than one year).
This is coupled with rising costs which are likely to hit Sainsbury's in the coming months. The chain said it would try not to pass on increases to customers by working with suppliers and reducing its cost base. However, it predicted costs would rise 2-3% in the next year due to the fall of the pound since Brexit.
CEO Mike Coupe said it had been a pivotal year for the Group as it made progress delivering and accelerating its strategy.
"Food is the core of our business and we are committed to helping customers live well for less. Our food business remains resilient in a challenging market and we continue to innovate in quality and to invest in price. We are also investing in growth areas of the business to meet the changing ways that customers shop. "
He stated that the Board was pleased with the progress achieved since its Argos acquisition, adding that the deal should see £160m in EBITDA synergies by March 2019, six months ahead of the previous schedule.
The supermarket giant, like its peers, has been simplifying its business and reducing costs with the aim of delivering £500m in cost savings by 2017/18. The company has a strong balance sheet with £4bn in current assets, net debt of £1.4bn, and an improved net debt/EBITDA of 3.7x (from 4x last year).
Shares in J Sainsbury's fell 5% on Wednesday.
