Sainsbury’s has reported a significant fall in annual profits as strong food sales were outweighed by extra expenses related to operating its business during the pandemic. However, the group stated that costs associated with the crisis were beginning to fall away and it remained comfortable with forecasts for this year.
Over the year to 6 March, the group’s retail sales (excl. fuel) from its Sainsbury’s and Argos businesses rose 7.3% to £28.84bn, with like-for-like growth of 8.1%.
Driven by increased at-home consumption of food, total grocery sales climbed 7.8% having grown 8.2% in the first half and 7.3% in the second.
Argos also did well, with total sales rising 10.9% as online sales boomed during the pandemic. Digital sales at Argos surged up almost 70%, whilst Sainsbury’s online groceries business grew 120%.
However, the group’s underlying pre-tax profit fell 39% to £356m, with the benefits from the strong sales growth more than offset by £485m of direct costs related to the Covid-19 crisis, such as extra staff wages and safety measures.
On a statutory basis, Sainsbury’s recorded a loss of £261m, due mainly to one-off charges of £423m related to its restructuring programme announced at the end of last year that seeks to cut costs and reinvest the savings in new products and lower prices.
“We have a bold three-year plan to put food back at the heart of Sainsbury’s and drive improved performance,” Chief Executive Simon Roberts said today. “We are transforming the way we work and I am encouraged by how all of our teams have responded and the early momentum and performance towards our plan.”
He added: “Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook.”
The company expects borrowings to decline by at least £950m over the next four years, up from a previous target of £750m. It added it was comfortable with analysts’ consensus forecasts for underlying pre-tax profit for this year to come in at about £620m.
Shares in Sainsbury’s have increased over 7% so far this year, partly buoyed by bid speculation after Czech billionaire Daniel Kretinsky recently increased his shareholding to 9.99%.
Asked today by Reuters if there had been any contact with Kretinsky since he raised his stake in Sainsbury’s, Roberts said: “We meet and talk with all of our major shareholders on a regular basis and so as with all our shareholders we would do that also with Vesa.”
Vesa is one of Kretinsky’s investment vehicles. The stakebuilding fuelled bid speculation but Roberts noted that Vesa has expressed support for the board’s plans and strategy.
Meanwhile, Roberts also urged the government to simplify border requirements between Britain and Northern Ireland following disruption to trade in recent months after the UK left the EU.
“There’s a lot of uncertainty still to work through,” he told reporters today. “We continue to urge the government to find solutions that do simplify the border requirements so that we can move goods for customers, optimise availability and keep the cost and complexity as contained as possible.”
Since the UK left the EU single market, supermarkets in Northern Ireland have seen shortages of some food products. Sainsbury’s operates 13 supermarkets in the region and has been using a local partner to source some of the products it was struggling to import.
NAM Implications:
- Key is the group’s underlying pre-tax profit fall by 39% to £356m.
- Especially given the increasing presence of proactive shareholder Vesa, now 9.99% shareholding.
- Expected borrowings decline by at least £950m over the next four years, from £750m forecast…
- ..will need to have inevitable high inflation factored in…
- …as the government attempts to dilute some of the Lockdown costs.
- Action for NAMs:
- Re-assess your relative importance to Sainsbury’s in terms of share of reported sales.
- And how much you contribute to their profitability in terms of margin.
- Then prepare for your next negotiation…
