Sainsbury’s posted growth in underlying profit for its half-year results today, despite highlighting an 'uncertain' outlook ahead of the Christmas spending period.
Like-for-like sales climbed 0.6 per cent year on year during the six months, rising from the 0.2 per cent growth it reported for the first quarter of the year. That helped revenue hit £16.8bn, up 3.5 per cent on the same period in 2017.
Sainsbury's also posted a 20 per cent rise in underlying pre-tax profits, which rose to £302m largely as a result its recent acquisition of Argos, which was delivered ahead of schedule.
But profit before tax plunged by 40 per cent to £132m as Sainsbury's wrote off £170m in costs related to integrating Argos, bank transition and retail restructuring.
Why it's interesting
The firm blamed store management restructuring and its planned merger with rival Asda for the fall in profit.
Sainsbury's, which is the second largest supermarket chain in the UK, added that consumer outlook remained "uncertain" in the run-up to the grocer’s crucial Christmas trading period, with the market remaining "highly competitive and very promotional".
Lee Wild, head of equity strategy at Interactive Investor, said: "Sainsbury’s shares are not far off a 16-month high and up over 40 per cent since March, thanks in large part to April’s Asda announcement. Margins have suffered at the hands of the German discounters and, although the worst is over, business remains tough. Tesco was punished last month for missing half-year expectations, and Morrisons suffered a similar fate this week following a third-quarter slowdown."
Wild added: "Sainsbury’s admits that consumer uncertainty will make the crucial second-half difficult, and that clothing is fiercely competitive. However, its confidence in meeting forecasts for underlying full-year profit of £634m is reassuring."
Shares climbed 1.6 per cent in early morning trading.
What Sainsbury's said
Boss Mike Coupe said: "The market remains very competitive and we are transforming our business to meet rapidly changing customer needs. We have fundamentally changed how our 135,000 Sainsbury’s store managers and colleagues work and I would like to thank them for their ongoing hard work through this period."
In comments to the Today programme, he added that he was positive about Sainsbury's merger with Asda getting the nod from the Competition and Markets Authority (CMA), which is currently probing the deal.
"They're going into a lot of detail and looking at all aspects of it but we are confident in our case," he said.
"We believe that by bringing the two organisations together there is a unique opportunity to lower costs and ultimately those costs will be passed back to customers in the form of lower prices."
The CMA is expected to publish its findings in late January.