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Sainsbury's profits fall as it counts £46m cost of failed Asda deal

Sainsbury's has reported a 41.6% fall in pre-tax profits to £239m as it counted the cost of restructuring and its failed merger with Asda.

The supermarket said it had spent £46m preparing for the deal with its rival, which was blocked last week by competition authorities, while also revealing a downturn in annual sales.

The cost of the abortive Asda merger was one of a series of one-off charges totalling £396m that weighed on the supermarket's bottom line and also included provision for pension changes and a shake-up of stores.

Sainsbury's said that when stripping these out, profits for the year to 9 March were 7.8% higher - driven by what it described as a "solid food performance" as well as £160m of savings as it continues the integration of Argos, the retailer it bought in 2016.

Shares rose 5% in early trading.

Chief executive Mike Coupe brushed off speculation about his future after the failed merger, saying he would not quit and was committed to the business - and had the support of the board and shareholders.

Mr Coupe, who was caught on camera singing "we're in the money" after the Asda deal was first announced a year ago, told reporters: "I'll still be talking to you in months and years in the future."

The supermarket revealed that like-for-like sales fell by 0.9% in the final quarter of the financial year - the second consecutive quarter of decline - with sales slipping by 0.2% for the full year.

Grocery sales edged higher overall as prices grew but the volume of food and drink sold decreased. Meanwhile, general merchandise was flat and clothing sales declined.

Sainsbury's warned of a "highly competitive and very promotional" market amid an uncertain outlook for consumers.

Investors have been keen to see how Sainsbury's would respond after its high-profile attempt to join forces with Asda - a merger it claimed would save shoppers £1bn in lower prices - failed.

Mr Coupe said the company would increase and accelerate investment in its core business, with improvements to 400 supermarkets this year, while also ramping up spending on online technology and at the same time reducing debt.

Some analysts have suggested that the company's leadership might have lost focus on the business as their attention was diverted to the Asda deal.

But Mr Coupe said Sainsbury's had made significant improvements to store standards in recent months, and that it was "focused on reducing costs so that we can invest to make commodity products better value for our customers".

He added: "I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change."

The results come a day after industry figures suggested Sainsbury's was the only one of the "big four" supermarkets that has been failing to grow sales recently.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The market's been worried about Sainsbury's ever since the tie-up with Asda fell through, and while underlying performance hasn't been stellar, the supermarket's beaten expectations, and that's provided the share price with a much-needed fillip.

"However it's a bit premature to pop any champagne corks just yet.

"Perhaps most concerning is that sales growth is flatlining, at best. In some bits of the business, notably clothing and general merchandise, sales are in retreat.

"Of course, this all contrasts with a resurgent Tesco, which makes Sainsbury's sales performance look pallid by comparison."