May 3, 2017

Sainsbury’s warns on consumer confidence as profits fall

Annual pre-tax profits at J Sainsbury have fallen 8.2 per cent, weighed down by a "Transformation" programme at its banking division and the cost of integrating the Argos business it bought last year. Underlying profits, which exclude exceptional items, fell 1 per cent to £581m, in line with analysts' forecasts according to an average compiled by S&P Global Market Intelligence. "However, the picture is changing now," it added, pointing to a fall in consumer confidence and a slowing of real pay growth as prices rise. Supermarkets such as Sainsbury's have historically benefited from inflation, which allows them to pass on price increases and boost their profit margins, but analysts say the big grocery chains will be cautious about putting up prices in case they endanger their tentative progress towards regaining market share. Sainsbury's said the overall "Impact of cost price pressures remained uncertain", noting that although the price rises so far have benefited its food business, its non-food sales "Have been impacted by reduced consumer confidence and a marked slowdown in real pay growth".

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