Sainsbury's profits turn lower amid 'challenging' market

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Sainsbury (Amsterdam: SJ6.AS - news) 's has reported lower annual profits amid a "challenging" grocery market and warned it could be five years before it again sees steady growth in earnings.

Shares (Berlin: DI6.BE - news) fell 5.7% on the FTSE 100 after results showed pre-tax profits for the year to 11 March down 8.2% to £503m and Sainsbury's warned there was no sign of a let-up in the intense competition it faces.

Chief (Taiwan OTC: 3345.TWO - news) executive Mike Coupe said the UK grocery sector was "one of the most challenging, if not the most challenging, in the world".

He added: "We think over a three to five year period we can deliver strong and steady profit growth."

Mr Coupe said it had been a "pivotal year" for the group after the £1.4bn takeover of Argos, which contributed £77m to profits.

Sainsbury's said the lower overall profit figure reflected investment in its customer offer and cost inflation.

Mr Coupe said: "Our food business remains resilient in a challenging market and we continue to innovate in quality and to invest in price."

Sainsbury's said it faced a further squeeze on profits in the first half of the current financial year due to rising wages for store workers.

"The market remains competitive and the impact of cost price pressures remains uncertain," the group said.

Like-for-like sales were down 0.6% but this was an improvement on the 0.9% decline in the previous year.

Sainsbury's faces tough competition from supermarket rivals in a sector that has come under pressure from discounters Aldi and Lidl.

At the same time, costs are being pushed higher because the pound's sharp fall since the Brexit vote has driven up the price of imported goods.

Mr Coupe said Sainsbury's was pleased with progress since snapping up Argos, having opened 59 Argos Digital stores in its supermarkets, and is now accelerating plans to open a total of 250.

Units (Berlin: 0E41.BE - news) currently housed within Homebase stores are being closed.

Sainsbury's results showed that while convenience store sales were up 6% and online groceries by 8%, the group's supermarkets saw a decline of 2%.

General merchandise and clothing saw an uplift, highlighting the fact it was food sales that are under pressure.

Argos sales climbed 4.1%.

More recent industry data from Kantar Worldpanel, released shortly after the annual results, painted a brighter picture for the business.

It pointed to the best sales growth for Sainsbury's since 2014 in the 12 weeks to 23 April, amid a revival for all the major supermarkets as price rises accelerated after two years of deflation.

However, much of the strong performance was attributed to the timing of Easter this year.