Cost of living alert

Sainsbury’s warns profits will fall as inflation bites

Sainsbury's Local
Sainsbury’s expects lower profits

Sainsbury’s saw its annual profits more than double as cost savings enabled it to increase food prices at a lower level than its rivals.

However, it echoed the warning from Tesco that soaring inflation would lower profit in the current financial year.

The company reported an underlying profit before tax of £730m in the year to March, up from £357m in 2020-21, while analysts on average had expected £703m for 2022-23.

Sainsbury’s bumper profits come as research suggests the average food bill could increase by £271 this year as prices continue to rise.

Sainsbury’s revenue rose 2.9% to £29.9 billion in 2021-22. Like-for-like sales, excluding fuel, fell 2.3%. They fell 5.6% in the fourth quarter, having fallen 4.5% in the third quarter.

Despite the leap in profits shares in the company fell 3.7% in early trade, underperforming the wider market, and adding to a fall of 13% so far this year.

The board is proposing a full year dividend of 13.1p, up 24% and has committed to increase its dividend payout ratio to around 60%.

Market reaction

John Moore, senior investment manager at Brewin Dolphin, said: “Broadly speaking, Sainsbury’s has posted a good set of results for the past 12 months, but all eyes are on the impact of inflation in the year ahead.

“The supermarket expects the higher cost of living to hit profits and it will have a difficult balance to strike between helping customers, upping staff pay, and maintaining its commitment to shareholders.

“But, with Argos and Habitat to lean on, the business has options to help it through this tricky period in a highly competitive grocery market.

“The self-help measures taken in recent years on debt reduction and cost management have also strengthened its balance sheet.”

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