Days after Tesco forecast lower profits to give it the flexibility to reduce prices in response to Asda’s efforts to win back shoppers, Sainsbury’s has said it expects its earnings to flatline this year in order to remain competitive.
After posting robust annual results today, the UK’s second-largest grocer said it expected to make an underlying operating profit of about £1bn from its retail business in its current financial year, roughly in line with the year just gone. However, analysts noted that this is far below the potential £400m hit flagged by Tesco.
Chief Executive Simon Roberts stressed the group was committed to sustaining its “strong competitive position” and ensuring customers get “great value”.
The pledge comes weeks after Asda’s Chairman Allan Leighton said that his business was prepared to take a significant hit to its profit to finance a shift to a new ‘Asda Price’ that is 5% to 10% lower than its rivals to recover lost market share.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown, said Sainsbury’s guidance looked “quite conservative at around 8% below market expectations, pointing to broadly flat revenue and profit this year.
“That echoes conservative guidance from Tesco last week, and gives Sainsbury’s plenty of wiggle room to get its hands dirty if competition with the likes of Asda and Tesco heats up. But shy of an all-out price war, there could be room for positive surprises as the year progresses.”
Richard Hunter, head of markets at Interactive Investor, added: “With the sector about to be embroiled in a trade war of its own, Sainsbury’s is preparing for the fight with some added momentum, which should provide some protection.
“Given that in terms of market share, Sainsbury’s and Asda are more closely linked with numbers of 15% and 12.5% respectively, it is perhaps Sainsbury’s rather than Tesco who could be under most pressure.
“However, these numbers are largely ahead of expectations, and Asda will have its work cut out if it is to upset the apple cart.”
Over the 12 months to 1 March 2025, Sainsbury’s group retail underlying operating profit was up 7.2% to £1.04bn, with double-digit growth in its grocery division partially offset by lower profits at Argos. Pre-tax profit jumped from £277m to £384m.
Total full-year retail sales rose 3.1% to £31.56bn, with like-for-like growth of 3.2%. Performance picked up in the final quarter, with like-for-like growth of 3.7% compared to 2.8% in the previous three months.
The group doesn’t offer like-for-like sales figures by division but revealed that total annual sales in its grocery stores were up 4.2% after a 4.1% increase in the fourth quarter. At Argos, annual sales slid 2.7% after a 1.9% rise in the final quarter was not sufficient to offset falls in the previous three quarters.
Sainsbury’s outlined its success in lowering prices with initiatives such as Aldi Price Match and Nectar Prices. Customer satisfaction with product availability was also said to be at record levels.
Meanwhile, the group revealed plans for its biggest store opening programme “in over a decade” as it seeks to increase its market share.
Sainsbury’s bought 14 new supermarket sites during the last financial year from Homebase and Co-op, with conversions underway. Combined with its organic store opening programme, the group expects to open a total of 15 supermarkets during 2025/26 and over the next two years, new supermarket openings will add over 400,000 sq. ft. of new space. It also plans to add another 25 new convenience stores in each of the next two years.
Roberts said: “We’ve transformed our business over the past four years. We have created a winning combination of value, quality and service that customers love, investing £1bn in lowering our prices.
“More people are choosing Sainsbury’s for their main grocery shop as a result, delivering our highest market share gains in more than a decade. We are committed, above all else, to sustaining the strong competitive position we have built – consistently giving customers the great value they have come to expect from Sainsbury’s – and we expect to continue to outperform the market.
“Our belief in the strength of Sainsbury’s offer has driven our decision to make our largest investment in expanding our store space in over a decade as we open supermarkets in key new locations and extend food space within many of our existing stores.”
NAM Implications:
- The added uncertainties of Trump tariffs…
- …gives retailers the ’excuse’ to wait and see outcomes.
- i.e. postpone any plunge into a UK price war.
- But also manage stock market expectations, should Asda take an extra plunge.
- (Besides, whilst Asda management may have permission to make threats…
- …this may not include the funding of a prolonged price war)
- Meanwhile, retailers like Sainsbury’s and Tesco with strong balance sheets and considerable momentum…
- …may now want to preserve their ‘wealth’ following Trump’s announcements.
- And await an Asda blink…
