Sainsburys sees strong profit growth this year on food pivot

Underlying pre-tax profit for the year to March 2 rose 1.6% to £701m, beating Sainsbury's own guidance of £670 - 700m. It expects current-year underlying retail earnings of £1.01 to 1.06bn.

"We are confident of delivering strong profit growth in the year ahead. We expect to continue to grow grocery volumes ahead of the market, driving profit leverage," Sainsbury's said on Thursday.

Markets were less than impressed however, and marked the shares down against a FTSE 100 that was outperforming European counterparts on Thursday.

“Sainsbury’s results didn’t hit the right note with investors despite upbeat commentary from management. Underlying profit growth of 1.6% is pedestrian and a lack of dividend growth hardly signals a business going places. While it’s done well by focusing on food and broadening its appeal with more value-led products, clothing sales remain miserable and Argos’ performance is nothing to write home about," said AJ Bell investment director Russ Mould.

Total sales were £36.3bn, up 3.4% year-on-year. Like-for-like sales, excluding fuel, rose 4.8% in the fourth quarter. On a statutory basis, pre-tax profits fell 15% to £277m, mainly due to a restructuring of the company's banking division.

Sainsbury's has set its sights on German discounters Aldi and Lidl who have been claiming market share with lower prices. The UK group in February announced a swathe of cost cuts, including axing 1,500 jobs as it promotes its Nectar loyalty scheme that includes special offers for cardholders, although some campaigners have accused the firm of "two-tier" pricing and selling on customer data to boost profits.

"We said we'd put food back at the heart of Sainsbury's and that's what we've done. Our food business is firing on all cylinders," said chief executive Simon Roberts.

"We have the best combination of value and quality in the market and that's winning us customers from all our key competitors, driving consistent volume market share growth as more customers choose us for their weekly shop and all their special occasions."

Reporting by Frank Prenesti for Sharecast.com