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April 30, 2020

Sainsbury’s warns of GBP500m profit hit as clothing sales slump

UK supermarket retailer Sainsbury’s has warned of a GBP500m (US$624m) profit hit for its next financial year as significant costs related to safety measures amid the Covid-19 pandemic and lower clothing sales take their toll.

By Michelle Russell

UK supermarket retailer Sainsbury’s has warned of a GBP500m (US$624m) profit hit for its next financial year as significant costs related to safety measures amid the Covid-19 pandemic and lower clothing sales take their toll.

In a trading update today (30 April), the retailer said the impact of coronavirus will leave underlying profit before tax for the year to March 2021 broadly flat, despite a GBP450m business rate relief. The outlook includes a profit impact of over GBP500m, weighed down by costs associated with protecting customers and colleagues, weaker fuel, general merchandise and clothing sales and lower financial services profitability.

Sainsbury’s base case assumes lockdown restrictions will have eased by the end of June, but that the business will continue to be disrupted until mid-September.

“The last few weeks have been an extraordinary time for our business,” said CEO Mike Coupe. “This is an unsettling time for everyone, but I am incredibly proud of the way the business has responded, continually adapting and responding to customer feedback. We will continue to work hard to provide food and other essential products to households across the UK and Ireland who are adapting to a new way of living.”

Its update for the full year ended 7 March 2020, shows a 2% fall in underlying pre-tax profit to GBP586m, while on a statutory basis, pre-tax profit was up 26% to GBP255m.

Group sales were down 0.1% to GBP32.39bn, and on a like-for-like basis were down 0.6%. Retail sales, excluding fuel, were down 0.4% to GBP26.9bn, while clothing sales were up 1.2% for the year to GBP1bn, performing well online with 47% growth.

In recent weeks, however, despite strong grocery demand since the start of March and higher sales at Argos, clothing sales slumped 53% in the seven weeks ended 25 April, compared with a 2.5% rise in the final quarter of its previous financial year.

Grocery sales were up 12%, while total retail sales, excluding fuel, were up 8%.

Thomas Brereton, retail analyst at GlobalData, believes Sainsbury’s expectation that operational disruption will abate by mid-September is an optimistic one.

“We expect a more permanent higher demand for home delivery as worries overcrowded locations persist and previously offline-only consumers adapt to the new way of shopping.”

Will Broome, founder of white-label shopping app Ubamarket, believes supermarkets must adapt to a new normal.

“The coronavirus pandemic has brought about a new age of retail, and if supermarkets do not adapt, then their customers will suffer in the long-term, as much as their bottom line.

“Two of the key issues faced by supermarkets at the moment is how to make the shopping experience safer, and more efficient so that they can cater to as many customers as possible. There are now a number of technologies, especially mobile tech and apps, which could be easily implemented by supermarkets to dramatically improve both of these areas, and it is incumbent upon supermarkets to make the shopping experience as safe and convenient as possible for all of their customers.”

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