Sainsbury’s warns of price pressures as Argos suffers supply chain woes
Sainsbury’s has declared it is in a “good position” for Christmas despite supply chain disruption across the UK that, it admitted, had contributed to lower sales at its Argos operation.
The UK’s second-largest supermarket chain also warned that price pressures were building as a result of the challenges while reporting bottom line pre-tax profits of £541m for the 28 weeks to 18 September, compared to losses of £137m in the same period last year.
Underlying profits were 23% up despite like-for-like sales rising by just 0.3% over the period – hurt by a 12% slump in Argos revenues after shortages took hold and demand eased as the economy reopened following COVID disruption.
Sainsbury’s has been saving cash by closing Argos stores and placing operations inside its supermarkets
Sainsbury’s said: “In line with the market, recent performance (at Argos) has been impacted by supply challenges, unseasonal weather and lower demand for home office equipment and technology in the second quarter.”
It revealed that there were expected to be limited supplies of consumer electronics at Argos ahead of Christmas.
The company gave its update 24 hours after another big retail name, Next, said that stock availability had improved as supply chains are hit by a squeeze on global shipping and a shortage of labour. The latter has affected operations from road haulage to warehousing.
Sainsbury’s biggest competitor, Tesco, signalled last month that its supplies had remained “resilient” in the face of the challenges amid warnings from logistics specialists that there were likely to be industry-wide shortages of some ranges in the run-up to the key festive season.
For example, the pandemic and Brexit have been blamed for a lack of skilled butchers – a scenario that has already led to the culling of pigs and threatened turkey volumes – though ministers have relaxed immigration rules to allow more into the country.
More foreign butchers to be allowed in UK
Sainsbury’s chief executive Simon Roberts told investors on Friday: “Our industry faces labour and supply chain challenges.
“However our scale, advanced cost-saving programme, logistics operations and strong supplier relationships put us in a good position as we head into Christmas.”
Mr Roberts later added that while price pressures, as a result of the headwinds, had been flat during the first six months of its financial year he now expected them to build over the winter months – potentially threatening customers with additional bills.
Mr Roberts also admitted that recruitment was “challenging” and it needed more drivers.
The company maintained its guidance for the full year which forecasts that profits will almost double on 2020/21.
Shares fell 3% in early deals.
The chain has been the subject of bid speculation since rival Morrisons was taken over last month.
John Moore, senior investment manager at Brewin Dolphin, said: “Sainsbury’s continues to show resilience, navigating the challenges of the pandemic, investing in its spread of services, and taking self-help measures to improve its position.
“Those initiatives are beginning to bear fruit in the form of increased sales, higher profits, better market share, and improving cash flow.
“These results will do little to dissuade potential buyers of the business – particularly as debt reduction targets are on track – and rumours of interest in the company are likely to persist following Morrisons’ takeover.