Sainsbury's: Iran war will impact customers and business
Sainsbury’s has warned that the war in the Middle East will “impact both our customers and our business” and said profits could fall this year as a result.
The UK’s second largest grocery chain echoed the cautious message delivered last week by largest rival Tesco. Sainsbury’s chief executive Simon Roberts said shoppers have become “even more focused on the cost of living” since the conflict started at the end of February.
He stressed that the retailer is committed to ensuring customers get “the best possible value” as a result. The retailer said it expects an impact from the conflict but that the duration and extent of this remains “very uncertain”. It said it expects to deliver underlying operating profits of between £975 million and £1.075 billion for the current financial year.
This came as Sainsbury’s told shareholders that it reported a £1.025 billion underlying operating profit for the year to February 28, down 1.1 per cent on the previous year.
Meanwhile, pre-tax profits jumped by 55.3 per cent to £393 million for the year. The retailer also revealed that group revenues, excluding VAT, rose by 2.7 per cent to £33.6 billion for the year. Retail sales, excluding fuel, were up 4.3 per cent for the year, boosted by a 5.2 per cent rise in grocery sales on the back of strong volume growth. It also reported that sales in its Argos business grew by 0.7 per cent to £4.1 billion for the year.
Richard Hunter, Head of Markets at interactive investor, commented: “There is more than a tinge of disappointment accompanying these results, which came up against higher expectations leading into the numbers, and this is quite apart from any impact of the current Middle Eastern conflict.
"The numbers are solid, as perhaps had been expected, but are shy of some of the loftier estimates being attached to the group.”
Sainsbury’s highlighted that significant operating cost inflation and investment in value to keep prices lower for consumers were the main drivers of any lighter numbers, said Mr Hunter.
"Nonetheless, underneath the bonnet there are some signs of further progress. Grocery remains central to the group’s efforts, accounting for 72 per cent of overall sales, and revenues grew by 5.2 per cent over the year to £24.26 billion, with the likes of the group’s Aldi Price Match and Your Nectar Prices proving popular.
Mr Hunter added: "These results cover the year to the end of February and therefore contain no elements whatsoever of the conflict in the Middle East.
"In terms of the current situation, Sainsbury’s is understandably cautious and vague on the outlook, with the only meaningful change being conservative guidance relating to this year for underlying operating profit in a range of between £975 million and £1.075 billion, which leaves some room for manoeuvre depending on the eventual outcome.”
"Retail cash flow is again expected to exceed £500 million, which again is not a stretching target compared to this year’s number.”
"When the current dust has settled, it remains to be seen whether the market consensus of the shares as a buy stays in place, or whether this update has shaken investor confidence, marking a move towards a more conservative general view.”
Susannah Streeter, chief investment strategist at Wealth Club, said: “The war has thrown up clouds of uncertainty for Sainsbury’s, as cost pressures threaten to mount and shoppers become more cautious.”
"It’s the latest retailer to warn about an unpredictable outlook.”