Sainsbury’s slows decline in food sales yet remains under pressure

The pace of decline in food sales at J Sainsbury slowed in the first half of its financial year, although general merchandise sales remained under pressure amid an “uncertain” consumer outlook. 

Same-store sales were down 1 per cent, in line with analyst expectations. Total grocery sales fell 0.1 per cent, and in the second quarter they were in positive territory as the food retailer used price cuts, petrol promotions and coupon deals to lure shoppers back.

The sales performance was weaker than last year, when fine weather and the football World Cup provided a strong boost to sales, but was an improvement on the trend seen in more recent quarters.

General merchandise sales, including Argos, fell 2.5 per cent and clothing was down 1.2 per cent in what the group termed a “subdued” market.

The increased levels of promotion resulted in underlying margins falling by 0.33 percentage points. Pre-tax profit fell to £9m from £107m owing to £229m of previously announced non-cash exceptional costs relating to store closures and asset impairments. 

The “adjusted” figure widely followed by analysts was £238m, down 15 per cent from last year and slightly below market forecasts of £243m.

During its year-long battle to push its proposed takeover of smaller rival Asda through regulatory approval, Sainsbury’s lost market share to rivals, prompting criticism that management was becoming distracted. 

After the deal was blocked, the company said it would close more stores, cut costs and improve the profitability of its banking operation in order to improve returns. The bank made an underlying profit of £20m in the first half, but required a cash injection from the parent company of £35m. Sainsbury’s has pledged that there will be no more such injections as it has ceased capital-intensive mortgage lending. 

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The failure of the Asda combination weighs heavily on the company’s share price, which is down a third over the past year — worse than listed peers such as Tesco and Wm Morrison.



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