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Britain’s Sainsbury’s warns of lower profit on inflation hit
Global Banking & Finance Review®
Company
By James Davey
LONDON (Reuters) -British supermarket group Sainsbury’s followed market leader Tesco in warning of a drop in profit this financial year as soaring inflation raises its costs and hits shoppers’ spending, sending its shares lower.
Sainsbury’s said on Thursday its underlying profit before tax in 2022-23 was expected to be between 630 million pounds and 690 million pounds ($789-$864 million) – below analysts’ average forecast of 703 million pounds and the 730 million pounds made in the year to March 5, 2022, which benefited from lower COVID-19 costs.
“The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers’ disposable incomes,” said CEO Simon Roberts.
Britons were “watching every penny” he told reporters.
Shares in Sainsbury’s were down 2% at 0913 GMT, extending 2022 losses to 15%.
Already this month, Tesco, No. 4 player Morrisons and No. 7 the Co-operative Group have all warned on the outlook as a cost of living crisis and supply disruption due to the war in Ukraine weigh on the grocery sector.
Surging prices are causing the biggest squeeze on UK household incomes since at least the 1950s and consumer confidence is at near record lows.
Almost a quarter of people in Britain said it became harder to pay household bills even before increases in regulated energy prices took effect, according to an official survey published on Monday.
EXPOSURE
Analysts see Sainsbury’s as more challenged than other supermarket groups because of its ownership of the Argos general merchandise business – a sub-sector more exposed to pressure on consumers’ disposable income.
“Sainsbury’s will be hit on both volumes and margin more given the accelerating inflation, high exposure to general merchandise and lack of competitive pricing vs Tesco,” said Bernstein analyst William Woods.
Sainsbury’s revenue rose 2.9% to 29.9 billion pounds in 2021-22. Like-for-like sales, excluding fuel, fell 2.3%. They fell 5.6% in the fourth quarter, having fallen 4.5% in the third quarter.
General merchandise sales slumped 21.1% in the fourth quarter, after falling 16% in the third.
Britain’s inflation rate hit a 30-year high of 7% in March and is expected to peak at nearly 9% later this year. Food inflation hit 5.9% in April, according to industry data.
Sainsbury’s said it continued “to inflate behind competitors on the products customers buy most often,” and last week lowered prices across 150 of its highest volume fresh products.
It said its relative price position versus German-owned discounter Aldi improved 310 basis points in 2021-22.
On Monday, both No. 3 player Asda and Morrisons said they were cutting prices on essential items.
Sainsbury’s is paying a full year dividend of 13.1 pence, up 24%, and has committed to increase its dividend payout ratio to around 60%.
($1 = 0.7988 pounds)
(Reporting by James Davey, Editing by Paul Sandle, Michael Holden and Barbara Lewis)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI) or the Producer Price Index (PPI).
Profit before tax is a company's earnings before tax expenses are deducted. It provides a clear picture of a company's profitability from its operations, excluding the impact of tax liabilities.
Disposable income is the amount of money that households have available for spending and saving after income taxes have been deducted. It is a key indicator of consumer spending potential.
Consumer confidence is an economic indicator that measures how optimistic or pessimistic consumers are regarding their expected financial situation and the overall economy. High confidence usually leads to increased spending.
General merchandise refers to a wide range of products sold in retail stores, including household goods, clothing, and electronics. It is distinct from specialized categories like groceries or perishables.
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