Sainsbury's profits expected to lag as costs weigh

Jasper Jolly
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Sainsburys Announce Rise In Sales For First Quarter
Sainsbury's recently announced thousands of job cuts (Source: Getty)

Supermarket giant Sainsbury’s is expected to report a decline in profits when it updates investors on its first-half performance on Thursday as it tries to make itself leaner to combat competition from discounters.

Consensus estimates predict underlying profits before tax at Britain’s second largest supermarket chain will fall to £241m for the first half of the year.

The firm has been restructuring its grocery business as well as Sainsbury’s bank, while investors will eagerly await any message on its integration of catalogue retailer Argos.

Read more: Sainsbury's to cut 2,000 jobs as it seeks £500m in cost savings

The supermarket chain has committed to a hefty £500m of cost cuts as it tries to compete against discounting rivals like Aldi and Lidl. Last month it announced 2,000 jobs will go, mainly from human resources and payroll staff, adding to cuts of 1,000 jobs at its head office announced in August.

If underlying profits do come in at consensus estimates it will be add to a series of year-on-year declines in first-half profits. In 2016 the firm reported underlying profits of £277m, while as recently as 2015 profits were £375m.

Sainsbury’s market share slipped by 0.2 percentage points to 15.7 per cent of spending in supermarkets by British shoppers, according to September data from Kantar Worldpanel, despite a first quarter in which like-for-like sales rose by 2.3 per cent.

At its first-quarter update Mike Coupe, the group’s chief executive, said the market remains competitive. Supermarkets have faced a choice in the last year between diminishing margins and retaining market share as the price of imported goods has rocketed.

Read more: Here's why Sainsbury's shares closed up today

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