Sainsbury's share price fell this morning as full year profits came in ahead of analyst forecasts – but still show a hefty year-on-year decline as the price wars continue to take their toll.
The supermarket reported group sales of £25.8bn for the 12 months to 12 March – down 1.1 per cent on the same period last year. Retail sales were up 0.4 per cent but like-for-likes dropped 0.9 per cent.
Underlying pre-tax profits fell 13.8 per cent to £587m – better than the £577m consensus.
Underlying basic earnings per share dropped 8.3 per cent to 24.2p, ahead of the 22.9p per share forecast. Return on capital employed was down 88 basis points to 8.8 per cent.
On a statutory basis, Sainsbury's reported group sales of £23.5bn, down marginally on 2014/15, with pre-tax profits of £548m, compared with a loss of £72m last year.
Sainsbury's share price dropped 3.7 per cent in early trading.
Why it's interesting
Sainsbury's is arguably the best performing of the Big Four supermarkets, so investors will be hoping for relatively good figures today.
The retailer has adopted a number of initiatives in an attempt to woo shoppers back from the discounters such as Aldi and Lidl, tailoring its range and changing its pricing strategy. In fact, it will become the first major grocer to ditch its multi-buy promotions – which it plans to do by August this year – as part of a wider trend away from what is seen as a confusing system, in favour of "lower regular prices".
The period also includes Christmas, where Sainsbury's Mog the Cat advert – a tie-up with Save the Children – won accolades, arguably stealing the festive crown from John Lewis,. and drove sales of Mog merchandise and general products.
What Sainsbury's said
Chief executive Mike Coupe said: “We are making good progress against the strategy we outlined to shareholders in November 2014. We continue to outperform our main supermarket peers and maintain market share in a competitive, deflationary environment. We deliver great quality products and services at fair prices, whenever and wherever customers want to shop – and with volumes and transactions up, it is clear customers are responding positively to our offer."
But he noted that "ongoing pricing pressures and food price deflation" had harmed sales and margins.
“The market is competitive, and it will remain so for the foreseeable future. We believe we have the right strategy in place and are taking the right decisions to achieve our vision to be the most trusted retailer where people love to work and shop," Coupe added.
Chairman David Tyler said: “We are focused on building shareholder value and are confident that by following our established strategy, driving efficiencies and managing costs carefully, we will achieve this."
What analysts said
Russ Mould, investment director at AJ Bell, said: “A second consecutive decline in full-year like-for-like sales, underlying pre-tax profits and the dividend show how tough life remains for grocery giant Sainsbury’s as the company’s boss Mike Coupe turns to the acquisition of Argos’ parent home retail group to help revive its stalled momentum.
“Although Mike Coupe has very clear plans for Argos, especially in terms of Sainsbury’s click-and-collect and online services, Argos latest full-year numbers were dreadful and left the business way short of its own 2017-18 profit target.
"Add to that the generally poor record of all merger and acquisition deals in delivering what they promise, and investors are right to treat the Home Retail deal with a degree of scepticism and place a discount rating on the stock.
"Coupe and his team must now deliver to prove the doubters wrong.”
Steve Clayton, head of equity research at Hargreaves Lansdown, added: "This year, it is the interims, not the full year results that matter for Sainsbury’s, because that is when they will be revealing just what they think the acquisition of Argos will mean for the group. Right now, with the offer still open, Sainsbury are staying tight-lipped, leaving investors guessing. In the short term, it looks like the relief from a lower pace of food price deflation could be dulled by a reduction in consumer spending power gains, leaving the core supermarkets facing a further spell of tough trading.
"Argos, with all of its own problems will be a challenge to integrate, but at least Mike Coupe has given the grocer an opportunity to move firmly into the multi-channel world and reduce its dependence on the vicious food retailing market, where the discounters are showing no sign of packing up and going home."
Better-than-expected figures from Sainsbury, but the supermarket (and sector in general) is still not out of the woods.