Fall in profits at Sainsbury’s as price cuts bite

Supermarket giant Sainsbury’s reported an 18 per cent fall in first half profit, hurt by food deflation, including its own price cuts.

The firm reported a profit before tax and one off items of £308m for the 28 weeks to September 26, its lowest first half profit for six years and down from £375m in the same period last year.

However, it was ahead of analysts’ average forecast of £293m.

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A year ago Sainsbury’s chief executive Mike Coupe set out a strategy to stem the flow of shoppers to discounters Aldi and Lidl with price cuts and improvements to product quality and availability and customer service, financed by cost savings and dividend reductions.

Though profits are falling the plan is showing some success, with Sainsbury’s demonstrating greater resilience to the discounters and changing shopping habits than its “big four” rivals - market leader Tesco, Asda and Morrisons.

Over the summer, Asda revealed its worst quarterly sales figures in more than 50 years, while Morrisons saw like-for-like sales excluding fuel fall by 2.6 per cent in the 13 weeks to November.

In September Sainsbury’s reported better-than-expected second quarter sales and raised its profit expectations for the full 2015-16 year, sparking a 15 per cent jump in its shares.

However, the firm’s full-year profit is still expected to be sharply down on the previous year.

Prior to Wednesday’s update analysts were on average forecasting a 2015-16 pre-tax profit of £573m, down from £681m made in 2014-15.

“The grocery retail marketplace remains challenging,” said Mr Coupe. “I am confident we are making progress and we are looking forward to a successful Christmas.”

Mr Coupe added: “To complement our core food offer, we are delivering on our strategy to expand our non-food businesses with further growth in clothing, general merchandise and Sainsbury’s Bank.

“Our strategy of investing to ensure customers can shop with us across multiple channels remains a strategic advantage.”

Sainsbury’s is paying an interim dividend of 4 pence, down from 5 pence last time.