The £200m cost of closing 15 supermarkets and dozens of Argos stores has all but wiped out profits at Sainsbury’s as the supermarket faces rising competition from discount rivals.
The UK’s second largest grocer said pretax profits dived more than 90% to £9m in the six months to 21 September after the one-off property write-down, compared with £107m in the same period a year before. It also spent £25m in redundancy costs related to reorganising store management and closing an Argos delivery depot.
The write-down follows Sainsbury’s announcement two months ago that it would close up to 70 Argos stores and replace them with outlets inside its supermarkets. It is also closing a net five supermarkets and will shut 40 convenience stores, although it intends to open 100 new ones.
Even if one-off costs are excluded, profits fell 15% to £238m as sales slipped by 0.2% to £16.8bn.
However, Mike Coupe, the chief executive, said Sainsbury’s had “created positive momentum” with price cuts and investments in large beauty areas, premium ready meals and exclusive partnerships with brands such as the fast-food business Leon.
The supermarket blamed poor weather compared with last year for a 0.1% fall in grocery sales over the half year. It said sales had risen by 0.6% in the most recent three months after it cut prices on 1,000 of its bestselling products since February. The grocer has ditched its cheapest Basics range in favour of 200 low-price products under new in-house labels including Stamford Street ready meals, Mary Ann’s Dairy and Greengrocer fruit and veg.
Clothing sales rose 3.3% and general merchandise sales fell 2%.
Coupe said the retail market was highly competitive and the outlook for consumer confidence was not clear as a result of the forthcoming general electionand the continuing Brexit debate.
He said it was unclear how an election so close to Christmas would affect sales as this had not happened since 1923, but that consumer sentiment was still soft and appeared to have become poorer as a result of the difficult political backdrop.
“People will still have a great Christmas and spend their money,” he said, but added: “The sooner we can resolve our future [in relation to Brexit] the better. Ultimately that’s what will fuel consumer confidence and retail in the UK.”