Retail

Sainsbury’s sales bolstered by warm summer and lower prices

UK supermarket chain’s profits hit by restructuring and merger costs

 

Sales growth at J Sainsbury has picked up after the supermarket group benefited from the hot UK summer and lowered its prices.

The big four grocery chain, which is in the process of attempting to merge with rival Asda, said like-for-like sales rose 0.6 per cent in the half-year to September, an acceleration from the 0.2 per cent growth it reported for the first quarter.

The group’s half-year profits slumped by 40 per cent to £132m after it restructured part of its business and incurred costs related to its planned merger with big four grocery rival Asda that would create Britain’s biggest supermarket chain.

Sainsbury’s said that excluding these costs, which it deemed to be one-offs, its pre-tax earnings rose by a fifth to £302m on a so-called underlying basis.

“The market remains very competitive,” chief executive Mike Coupe said.

He added that the outlook for the Christmas trading remained “uncertain,” against a background of consumer caution that has prompted retailers to lower prices and hold successive discounting periods to attempt to get shoppers through the doors.

“The grocery, general merchandise and clothing markets continue to be highly competitive and very promotional,” Mr Coupe said. He added that profit margins in Sainsbury’s general merchandise business, which sells clothing and household items, were “under pressure.”

Sainsbury’s has been cutting its prices, with a particular focus on fresh produce, as it struggles to maintain its market share against stiff competition from Wm Morrison, Tesco and discounters Aldi and Lidl.

The group aims to offer even lower prices after its proposed deal with Asda, although the merger has run into obstacles after the UK competition regulator, the Competition and Markets Authority, announced an in-depth review.

“We continue to engage constructively with the CMA,” Mr Coupe said.

In the run-up to the proposed merger, Asda started a redundancy consultation that could lead to the loss of 2,500 jobs.

The CMA is examining the role of discounters Aldi and Lidl in its assessment of the Sainsbury-Asda merger, as well as the rise of online retailers.