Sainsbury’s hikes earnings outlook after strong first half

Sainsbury’s has said it is set for annual earnings of more than £1 billion as the supermarket upped its outlook after a better-than-expected half-year performance.

The UK’s second largest grocer, which also owns the Argos chain, reported an underlying operating profit of £504 million for the 28 weeks to September 13, up slightly on last year’s £503 million and better than the group had forecast.

Pre-tax profits lifted 5% to £271 million.

Sainsbury’s had previously said that retail earnings would remain flat over the full year, at around £1 billion, due to intensifying competition from rivals on price and a surge in costs.

But in its interim results, the group said: “While we will continue to make balanced choices to invest and sustain the strength of our competitive position through the most important trading period of the year, we now expect retail underlying operating profit of more than £1 billion.”

Like-for-like sales across the group, excluding fuel, lifted 4.3% in its second quarter, down from growth of 4.6% in the previous three months, but seeing a 4.5% rise over the first half as a whole.

Sainsbury’s sales grew 5.5% in the second quarter, with growth in food accelerating to 5.7%, although its clothing and general merchandise ranges saw sales growth halve to 2.1% in the quarter.

Argos sales growth pared back to 0.1% in the past three months, down sharply on the 4% rise notched up in the first quarter as it said the business was trading in a “subdued, competitive and deflationary market” and came up against strong trading a year earlier when clearance sales boosted its performance.

The group revealed talks in September to sell Argos to Chinese e-commerce giant JD.com, but discussions swiftly collapsed over a failure to agree over terms and price.

Simon Roberts, chief executive of Sainsbury’s, said efforts to keep price inflation low across food had “driven continued grocery volume growth ahead of the market for a fifth consecutive year and a profit performance ahead of our expectations”.

“While we expect the market to remain highly competitive, our momentum gives us real confidence as we head into Christmas and we have strengthened our profit guidance today,” he added.

The firm is cutting costs by £1 billion over the next three years as it looks to offset soaring costs – including April’s national insurance contributions hike and the new packaging tax.

Over the first half, it closed the remainder of its in-store cafes and scrapped hot food, pizza and patisserie counters in a move that saw it axe more than 3,000 jobs.