Sainsbury’s has reported a fall in annual profits after facing higher operating costs and investing to “battle inflation” for its customers.
Over the year to 4 March, the group’s underlying pre-tax profit slipped 5% to £690m but was still at the top end of its guidance range.
Boosted by higher prices, group sales rose 5.4% to £35.15bn, with like-for-like growth of 7.8% in the final quarter of the financial year.
Total annual grocery sales rose 3.0% after accelerating during the year to a 7.4% increase in the final quarter as food inflation soared. However, general merchandise sales in its supermarkets and Argos outlets ended the year down 0.4% despite a 7.6% rise in the fourth quarter.
Chief Executive Simon Roberts highlighted how “tough life is for so many households right now”, stressing that Sainsbury’s was “absolutely determined to battle inflation for our customers” after spending more than £560m on “keeping our prices low over the last two years”.
He noted that commodity costs were easing, but energy and labour costs were still high. Roberts stated that Sainsbury’s would stop raising prices for goods, and could cut them, as soon as input costs come down.
The company is also focusing on expanding its cheapest own-label lines to meet the needs of cash-strapped shoppers. “You’ll see us do more work on entry price points over the coming weeks and months, it’s an area we’re really focused on,” Roberts said.
As well as buying more own-label products to save money, Sainsbury’s noted that its customers were purchasing more frozen items, shopping more often and choosing to eat out less.
“Customers are saving wherever they can…But also they are trading up and celebrating at home more often too,” said Roberts, highlighting that the business saw record numbers of shoppers over the Easter trading period.
For its 2023/24 financial year, Sainsbury’s is forecasting profit between £640m and £700m, ahead of analysts’ average forecast of £631m.
Commenting on the results, Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “Attracting customers with low prices now could be the right move for the long-term as it can encourage switching from rivals. However, the degradation in margin can’t go on forever and profits are already feeling the pinch.”
She added: “Cash flow is in a healthier position thanks to a reversal of COVID disruption, which helps to underpin efforts as the battle of the big four continues. However you slice it, the landscape is very tricky.
“The huge pullback in spending in general merchandise shows the extent of consumer nerves, and the penchant for lower-priced grocery items needs to be short-lived if Sainsbury’s is going to be able to lift the margin ceiling it’s currently enforced on itself.”
NAM Implications:
- O/L and frozen switching of little direct benefit to branded suppliers.
- And trade support needs to reflect that…
- Patently Sainsbury’s cannot afford to hold prices whilst absorbing cost increases…
- So perhaps a way forward is via Retail Media?
