Profits Drop 40pc At Sainsbury

For the first half, J Sainsbury’s (LON:SBRY) has reported a serious 40% decline in pre-tax profits. The FTSE 100 supermarket chain lays the blame on costs incurred from store restructuring, the integration of Argos, and the planned merger with Asda.

Consumer outlook was also “uncertain” as the company approaches the Christmas trading period.

Merger Costs

Compared to £220 million in the same period in 2017, the first six months of 2018 saw the group’s pre-tax profits drop to £132 million. Part of the reason stems from Sainsbury’s proposed merger with Asda – plans which have already cost the company £17 million. If successful, the £7.3 billion merger would create the largest supermarket group in the UK, surpassing even the current market giant Tesco.

But the Competition and Markets Authority still has not approved the deal. Indeed, the second stage of the investigation is still underway.

Also from the report: the integration of Argos saw the supermarket bear costs of £25 million; the restructuring of stores reduced profits by another £69 million; and the complications arising over Sainsbury’s banking platform also took a £40 million toll on the books.

Rising Sales

Despite these underwhelming figures, however, it’s not all doom and gloom for the supermarket chain. This year’s sweltering summer added some heat to food sales, as well as boosting the turnover of general merchandise, such as barbecues and garden furniture. Underlying pre-tax profits actually increased from £251 million to £302 million (a 20% rise). Group sales gained a modest 3.5%, retail sales were up 1.2%, and even like-for-like sales ended up 0.6% higher.

Future Guidance

The chain now plans to expand its market share for 2019 by adding more store locations, including a raft of new convenience shops (15), more Argos stores (90), and a few more supermarkets (3). Full year estimates also remain unchanged at the company – profit over 12 months should remain in keeping with previous market forecasts of £634 million.

Nevertheless, the outlook for clothing, general merchandise, and grocery is far from certain. Sainsbury’s expects a “highly competitive and very promotional” winter period ahead.

Will Christmas be kind to the food retailer this year?