Sainsbury’s warns of ongoing price pressures as it records 8% drop in profits

Sainsbury's has posted an 8.2% fall in annual profits to �503m. Picture: Andrew Matthews/PA Wire

Sainsbury's has posted an 8.2% fall in annual profits to �503m. Picture: Andrew Matthews/PA Wire - Credit: PA

Supermarket Sainsbury's has cautioned over 'challenging' trading and ongoing price pressures as it posted an 8.2% fall in annual profits.

The chain reported pre-tax profits of £503m for the year to March 11, down from £548m the previous year.

Profits fell 1% on an underlying basis to £581m as it sought to keep prices low amid cost pressures from the Brexit-hit pound, which offset a £77m boost from the recently bought Argos chain.

The group said the market remains 'competitive and the impact of cost price pressures remains uncertain', with like-for-like supermarket sales down 0.6% over the year.

But Sainsbury's chief executive Mike Coupe said its food business remained 'resilient in a challenging market'.

He added: 'This has been a pivotal year and we have made significant progress delivering and accelerating our strategy.'

Group sales, including VAT, surged 12.7% thanks to a robust contribution over the final six months from the Argos business, which the group bought when it acquired Home Retail for £1.4bn last year.

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Sainsbury's said it made cost savings of £130m as part of a three-year target to cut £500m by the end of 2017/18. It also outlined aims to slash costs by another £500m in the next three years.

Mr Coupe said the group was 'pleased' with its progress so far since snapping up Argos, having already opened 59 Argos Digital stores in its supermarkets, which it said were performing well.

It is also ramping up plans to open 250 Argos Digital stores, the group added.

The figures mark the third year of falling underlying annual profits for Sainsbury's and show that, while convenience store sales were up 6% and online groceries lifted 8%, the group's supermarkets saw a decline of 2%.

The group warned that it expects cost price inflation of 2% to 3% over the financial year ahead and said rising prices were set to hit sales of general merchandise and clothing sales the most.

It said it expects underlying profit over the first half of the current year to be hit by rising costs, in particular from recent wage hikes.