The supermarket sector has become one of the most competitive in retail of late, largely due to the influx of discount brands eating into the market share of Britain’s traditional “Big Four” chains. Yet while analysts were concerned that this would lead to falling results for the Big Four, Sainsbury’s has defied expectations by posting strong pre-tax profits in its annual results report.
In the year to the 15th of March, Sainsbury’s saw profits rise by an impressive 16.3 per cent to £898 million, whilst also claiming that it has managed to maintain its market share. However, like for like sales, which exclude the impact of new store openings, rose by only 0.2 per cent – indicating that the retailer may face challenges during the next financial year.
Much of this success was due to the re-launch of its clothing brand earlier in the year, which marked the retailer’s single largest investment into its clothing range since 2004. This helped to generate sales of £750 million, and played a large part in the growth of general merchandise which is at present increasing at more than twice the rate of food sales.
Analysts were somewhat concerned about the possibility of a profits fall after Sainsbury’s posted its first quarterly fall in like for like sales for almost a decade in March, predicting that the 3.1 per cent dip would have a strong impact on annual results. However, expectations were beaten by a 5.3 per cent rise in underlying full year profits to £798 million – although chief executive Justin King continues to warn against complacency.
He says; “While the general economic outlook is showing some signs of improvement, conditions in the food retail sector are likely to remain challenging for the foreseeable future as customers continue to spend cautiously.”
Surprisingly, though, he did not seem overly concerned about the threat posed by discounters and the ongoing supermarket price war, continuing; “There’s always a price war in supermarket retailing.
“Occasional skirmishes break out, I guess this is one of them.
“In the end it isn’t just about price – quality, the provenance of sourcing is a big factor as well.”
By comparison, Sainsbury’s certainly seems to be performing better than its Big Four peers, with Morrisons continuing to struggle with falling market share. Tesco, meanwhile, recently posted its second annual profits fall in as many years, causing many to believe that Sainsbury’s will soon be in prime position to take the market leader’s crown.
The one concern looming on the horizon for Sainsbury’s is the coming departure of Mr King, who will step down in July after 10 years as chief executive. He will be replaced by current commercial director Mike Coupe.
Analysts are uncertain about the impact this will have on the company’s future, with Keith Bowman of Hargreaves Lansdown Stockbrokers saying; “Accompanying management comments again point to challenging conditions, concerns for a further ratcheting up of the current price war persist, whilst the change of chief executive does, understandably, raise some nerves.”
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