Sainsbury’s joins UK retailers’ £1bn profits club but warns of flat year ahead

Sainsbury’s has joined Tesco, Next and Marks & Spencer as one of a handful of retailers who have made £1bn in profits, but it does not expect to beat that figure this year amid rising costs and price competition. Simon Roberts, the chief executive of Sainsbury’s, indicated that the group was ready to take on Asda, which has pledged to cut prices in an attempt to win back market share, saying his business was “committed, above all else, to sustaining the strong competitive position we have built – consistently giving customers the great value they have come to expect”. The retailer also said it would be closing two of its five non-food warehouses to save £70m a year and introducing more technology to monitor self-service tills and help shoppers scan and pay for goods by themselves as the cost of labour has increased with changes to employers national insurance and an increase in the legal minimum wage. It said that 70% of its sales were now self-service up from 40% five years ago. The move is likely to hit jobs but Sainsbury’s did not say how many could be affected. Sainsbury’s pledge to maintain its competitive edge comes after Tesco, Sainsbury’s and M&S had billions of pounds wiped off their stock market value last month after the UK’s third-biggest supermarket chain said its profits were likely to decline this year as it invested more in cutting prices and putting more staff in shops. Clive Black, Sainsbury’s house broker at Shore Capital, said the retailer’s prediction that it would not grow profits this year meant it was “showing it is determined to hold on to its strengthened value credentials”. In a statement released on Thursday, Sainsbury’s said pre-tax profits rose 38.6% to £384m but underlying operating profit hit £1bn if one-off items, such as those related to the closure of cafes and hot food counters announced in January, were excluded. Growth was led by the Sainsbury’s chain, which increased sales by 4.2% to £26.6bn, but profits fell back at Argos, where sales fell 2.7% to £4.9bn, behind expectations. The supermarket group, which owns Habitat as well as Argos, plans to open 15 new supermarkets – 12 on sites it bought from the collapsed DIY group Homebase – and 25 more convenience stores. Roberts said: “Our belief in the strength of Sainsbury’s offer has driven our decision to make our largest investment in expanding our store space in over a decade as we open supermarkets in key new locations and extend food space within many of our existing stores.”