The British food retailer saw underlying profits fall 9% to £251m over the first half of the year, thanks to headwinds from wage cost inflation and its consolidation with Argos.
Like-for-like sales, excluding fuel but including Argos, rose 1.6% during the period, however this was considerably lower than the previous quarter’s 2.3% like-for-like sales growth.
Underlying earnings were slashed by over one fifth from 11.2p the previous year to 8.7p, which the firm blamed on the dilution impact of new shares issued to Home Retail Group shareholders after being purchased by Sainsbury’s.
Chief executive Mike Coup said the group had delivered a “good performance” in the last six months, “with more customers choosing to shop at Sainsbury’s in the first half than ever before”.
“We are adapting to meet customers’ changing shopping habits and, as a result, we are seeing positive momentum across the business,” said Coup.
During the first half, Sainsbury’s “updated and improved” 70 of its food ranges, which covered about 40% of food sales, and opened a further 73 Argos stores in its supermarkets.
While Coup confirmed the group was on track to deliver full-year pre-tax profits of £572m, in line with market expectations, he conceded the dividend had been cut from 3.6p to 3.1p.
However Laith Khalaf, a senior analyst at Hargreaves Lansdown, said the grocer’s integration of Argos is the “key plank in Sainsbury’s success moving forwards”.
“The supermarkets are going through a period of reinvention as they try to adapt to changing shopping habits,” he said. “Tesco is looking to buy Booker group, Morrison’s has partnered up with McColl’s and Amazon, and Sainsbury’s big chess move was the purchase of Home Retail Group last year.
“The forthcoming festive period will be a key test of whether the combination of Sainsbury’s and Argos is greater than the sum of its parts, as the convenience of visiting one location to pick up both Christmas gifts and groceries should be a tempting one for shoppers.”
Still, markets were less than impressed by the interim figures, sending Sainsbury’s shares down over 3% to £2.26 mid-morning on Thursday.
Vodafone and CityFibre team up
Meanwhile, Vodafone announced that it had agreed to a strategic partnership with wholesale fibre network infrastructure provider CityFibre, which counts Neil Woodford Investment Management, Invesco Perpetual and Odey Asset Management amongst its largest backers.
As part of the agreement, Vodafone will enjoy a period of exclusive rights to the UK’s largest alternative provider of fibre networks, which it says will bring ultrafast gigabit-capable full fibre broadband to as many as five million homes and businesses in the UK by 2025.
CityFibre’s shares rose immediately following the news and were trading over 27% higher at 55p per share, the highest price they have fetched in three months.
The share price rally was good news for Invesco Perpetual UK equity income manager Mark Barnett, Woodford and Crispin Odey, whose firms collectively own 45.9% of CityFibre.
Of the three, Barnett owns the largest stake, currently 20.1% of the fibreoptic infrastructure firm.
