Sainsbury’s Falls Despite 5% Jump in Food Sales

Major UK supermarket chain Sainsbury's (LON: SBRY) reported a decline in statutory post-tax profits for the first half of its financial year, despite strong sales growth. 

While the company's grocery business has seen significant market share gains, a challenging first quarter for Argos, merchandise & clothing, and fuel has impacted overall profitability.

Sainsbury's sales (excluding fuel) rose by 4.6%, with Grocery sales growth of 5.0%. However, Sainsbury's General Merchandise & Clothing sales declined 1.5%, while Argos sales were down 5% and fuel sales fell 4.4%.

Total retail sales came in at £16.3 billion, up 3.1% from the previous year. Headline pre-tax profits were £356 million, climbing 4.7% in the six months to September 14. However, at a statutory level, pre-tax profit, which excludes discontinued operations, dropped 52% to £131 million from £275 million.

“Our food business is going from strength to strength and we're making the biggest market share gains in the industry, with continued strong volume growth,” said CEO Simon Roberts.  “More and more customers are coming to us for their big food shop, recognising our winning combination of value, quality and service.”

He also noted that Taste the Difference, Sainsbury's premium private label brand, saw impressive sales growth of 18%.

Despite the mixed performance, Sainsbury's plans to invest in expanding its grocery business and has recently acquired several stores from Homebase and Co-op.

For the full year, Sainsbury's expects to deliver strong retail underlying operating profit growth and free cash flow generation. The company is also confident in its ability to deliver a strong Christmas performance.

However, investors reacted negatively to the news, with Sainsbury's share price falling 3% in early Thursday trading.