Warning as grocer suffers a 10 pc fall in profits

The group said it would continue to cut prices for shoppers, but it cautioned that the impact of the plunging pound on prices was “uncertain” as it braces for an increase in costs over its second half.

Sainsbury’s reported underlying pre-tax profits of £277m for the six months to September 24, down from £308m a year earlier.

Bottom line pre-tax profits rose 9.7 per cent to £372m.

It said second-half profits excluding Argos and Habitat owner Home Retail Group – snapped up earlier this year for £1.4bn – were expected to be lower due to “continued price investment and a step-up in cost inflation in the second half”.

Full-year results overall are set to be in line with market expectations thanks to a boost of between £55m and £75m from Home Retail in the second half.

Sainsbury’s chief executive Mike Coupe said: “Two years ago we set out our strategy to make our customers’ lives easier, offering great quality and service at fair prices, serving our customers whenever and wherever they want.

“We have made good progress delivering this in challenging market conditions.

“We have invested in the quality of our products while reducing prices on everyday items, delivering volume growth and outperforming the market in customer service and availability.

“To meet growing demand for home delivery groceries in London, we opened a new online fulfilment centre.

“By Christmas we will open 30 Argos digital stores and create a further 30 Argos digital collection points in our supermarkets. These will form part of a rollout of 200 new digital collection points where customers can collect Tu clothing, eBay and DPD parcels.

“We achieved like-for-like transaction growth across all our channels and remain on track to deliver our three-year £500m cost saving programme by the end of 2017/18.

“We will also deliver £500m of cost savings over three years from 2018/19.

“We continue to benefit from a strong balance sheet, with net debt reduced by £485m from March 2016 to £1.3bn and we are committed to paying an affordable dividend, fixed at 2.0 times cover for the full year. Consistent with our policy to pay an interim dividend of 30 per cent of the previous full year dividend, our interim dividend will be 3.6 pence per share.”

Mr Coupe said the acquisition of Home Retail Group had accelerated its strategy to give customers choice, convenience, speed and flexibility in when, where and how they shop.

He added: “Food will always be at our heart and we are strengthening our clothing, general merchandise and financial services offers to realise the potential of the group.

“The combination of our products, services, customer data and fast delivery networks gives us a strong platform for growth and enables us to deliver clear synergies.”

Commenting on the outlook, Sainsbury’s said that the market remained competitive and pricing pressures continued to impact margins.

The company said: “The full impact of the devaluation of sterling on retail prices is as yet uncertain.

“However, we are well placed to navigate the external environment and remain focused on delivering our strategy.”

The falling pound is putting even more pressure on the big players as suppliers begin to demand price increases.

Analysts at Shore Capital said: “Sainsbury’s grocery business is undoubtedly finding life tougher going now than has been the case for some years.”

But they said the update – the first including Home Retail figures – was “encouraging”, with the deal “on track” in terms of cost savings and integration.