J Sainsbury Plc indicated profit could rise slightly this year as the grocer’s efforts to keep prices down despite surging inflation attract customers.
(Bloomberg) — J Sainsbury Plc indicated profit could rise slightly this year as the grocer’s efforts to keep prices down despite surging inflation attract customers.
Underlying pretax profit will be in a range of £640 million ($799 million) to £700 million, according to a statement Thursday. That’s after profit came in at £690 million in the year to March, the top end of previous guidance. Sainsbury rose slightly in early trading in London.
Like its competitors, the UK’s second-largest grocer is fighting hard to protect its market share against the discounters Aldi and Lidl which are gaining shoppers during Britain’s cost-of-living crisis. Grocery price inflation has stayed in double digits for 10 straight months, pushing consumers to buy fewer items and focus their purchases on cheaper own-label goods.
Read more: Britons Flock to Discount Grocers as Food Inflation Persists
Chief Executive Officer Simon Roberts said Sainsbury is “absolutely determined” to battle inflation for customers.
With margins under such pressure amid price competition, UK supermarkets are having to run much leaner businesses than before. Sainsbury is planning to close two Argos depots and its office in Milton Keynes in the latest changes it has made to its staffing and store and distribution network to reduce costs. Rival Asda is cutting jobs and changing shift patterns and Tesco Plc is eliminating manager roles and closing food counters.
Sainsbury has taken a £560 million hit over two years to keep food prices down, including price matching discount rival Aldi on around 300 products and increasing the number of own-brand items where the prices are locked for a period of time.
There are some early signs that prices are starting to come down across the board in some areas. Tesco, Sainsbury, Aldi, Lidl, Asda, and Marks & Spencer all lowered the price of milk earlier this month as they seek to pass on some deflation to consumers. The supermarkets are charging 90 pence for a pint, down from 95 pence.
What Bloomberg Intelligence Says:
“Sainsbury’s initial £640-£700 million adjusted pretax-profit guidance for fiscal 2024 is 5.5% ahead of consensus at the midpoint, with tight cost control ensuring the company’s price-competitive stance can be maintained. Pretax profit would be 2.9% below the £690 million achieved in 2023 even as more discretionary general merchandise — with sales up 7.6% in fiscal 4Q — seems to be recovering with market-share gains. The maintained 13.1 pence total dividend and retail free-cash-flow guidance of £500 million support improved profit potential.”
— Charles Allen, BI retail industry analyst
Sainsbury’s Cost Focus Brings Improved Margin Potential: React
Sainsbury’s performance is better than expected but is still under performing compared with its bigger rival Tesco, said William Woods, an analyst at Bernstein.
Read more: Tesco Says Efforts on Prices Will Keep Profit Steady
British convenience-store operator Bestway Group Ltd. took a holding in Sainsbury earlier this year and it currently owns 4.45% of the grocer. Bestway, owned by the Pervez, Choudrey and Sheikh families, is the largest independent wholesale operator in Britain and has said it intends to increase the Sainsbury holding, while not considering an offer to buy.
(Updates shares in second paragraph, adds analyst quotes)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.