Sainsbury’s warns of lower profit amid cost-of-living crisis

Bloomberg

J Sainsbury Plc said profit will fall this year as normal shopping habits return following the end of lockdowns and as shoppers feel squeezed by the higher cost of living.
The supermarket chain forecast underlying profit before tax of 630 million pounds ($788 million) to 690 million pounds in the year through March, citing “significant external pressures and uncertainties.” While still above pre-pandemic levels, this is lower than the 730 million pounds achieved last year which included an estimated 100 million-pound boost from Covid-driven grocery volumes.
Shares in Sainsbury fell more than 4% in early trading in London. The stock has fallen about 13% this year.
Sainsbury benefited from more consumers eating at home and shopping online during the pandemic and last year the company raised its profit forecast twice.
Now the picture looks more difficult with shoppers’ habits starting to normalise, rising food prices and the war in Ukraine causing shortages and supply-chain disruption.
“We know just how much everyone is feeling the impact of inflation,” said Chief Executive Officer Simon Roberts. He said the grocer is lowering prices wherever it can and “we continue to inflate behind competitors on the products customers buy most often.”
Earlier this month Tesco also warned that profit will be squeezed as it battles to keep prices low for consumers facing a cost of living crisis as inflation in Britain soars.
UK grocery inflation hit 5.9% this month, its highest level in more than a decade, and overall supermarket sales fell 5.9% over 12 weeks, according to Kantar data.
Sainsbury, which controls about 15% of the UK grocery market and employs 189,000 people, is making savings across the business so it can invest in lowering prices.
Last month the company said it’s cutting 2,000 jobs as it closes in-store cafes to make way for new food halls and Starbucks cafes.
Together with closing hot food counters those changes are expected to save Sainsbury 125 million pounds to 150 million pounds over three years. Integrating Sainsbury, Argos and Habitat supply chain and logistics operations will save at least 250 million pounds once completed, the company said.
Sainsbury said once it has reduced net debt further it expects to return more cash to shareholders through higher dividends or share buybacks.