Sainsbury's tipped to report slide in underlying profits for fourth consecutive year

Supermarket is tipped to report a 6.2% dip in full-year pre-tax profits to £472m

Sainsbury’s says it is prepared to walk away from the HRG deal (PA)

Sainsbury's is set to report another dip in full year profits next week, with investors also expecting an update on cost saving measures and the progress of Argos.

The supermarket is tipped to report a 6.2 per cent dip in full year pre-tax profits to £472m, according to analysts at UBS.

On an underlying basis, consensus estimates point to a 1.5 per cent fall in profits to £572m, which would be the fourth consecutive year the metric has fallen.

The investment bank believes that Argos sales were dragged down in the fourth quarter as it came under pressure from stock clearances at collapsed rivals Maplin and Toys R Us.

“There have been some high profile general merchandise capacity exits through the first quarter of this year, such as Toys R Us and Maplin Electrics, which we expect to have had some impact on Argos sales as stock is liquidated, although this plays to Argos ultimately benefiting as an industry consolidator,” UBS said in a research note.

Sainsbury's splashed out £1.4bn to take over Argos and Habitat owner Home Retail Group in 2016 and has been expanding its ranges and presence ever since. There are now 213 Argos stores within supermarkets with more planned.

Barclays, meanwhile, is forecasting flat fourth quarter like for like sales across the group.

The figures will come after the supermarket upgraded its full year profit forecast following a record Christmas earlier this year. But even then, Sainsbury's flagged that sales at Argos fell 1.4 per cent in the third quarter, adding it is cautious about challenging market conditions and the consumer environment.

Supermarkets are also battling rising costs linked to the Brexit-hit pound, falling consumer confidence and fierce competition in the sector as Lidl and Aldi continue their relentless march.

Graham Spooner, investment research analyst at The Share Centre, said: “The sector received a recent boost from Tesco's results and long suffering investors will be hoping that Sainsbury's can also come out with improving news regarding sales. We can expect an update on cost saving measures and the expansion of Argos into its stores.

“The crowded marketplace with the rise of Lidl and Aldi makes for a very difficult environment for the group, which has been reflected in the share price performance for many years.”

PA