Sainsbury’s counts the cost of supermarket price war
Sainsbury's is expected to unveil a near 25 per cent slide in first half underlying profits on Wednesday, as efforts to compete with rivals and stay ahead in the supermarket price war hurt margins.
Analysts at Barclays expect margins to fall by 60 basis points to 2.5 per cent and underlying profit before tax to decline by 24 per cent to £284m. That compares with the first six months of last year when profits fell by six per cent to £375m.
Wednesday's interims will come just weeks after Sainsbury’s provided some hope to the struggling supermarket sector by reporting a better-than-expected 1.1 per cent decline in second quarter underlying sales. The group also hiked its full-year profit guidance, with analysts now predicting £573m.
Jefferies’ analyst James Grzinic said the second quarter performance already set the scene for "a more resilient first half than feared".
“So far this year the Sainsbury interplay between gross margin and like-for-like sales has been fractionally less pressured than we had feared. Sainsbury's execution remains impressive. For us the halving of Nectar points in April 2015, with no obvious impact on customer behaviour, was a highlight," Grzinic said in his recent note.
The broker has forecast a more positive pre-tax underlying profit of £293m for the first half.