Sainsbury's warns of profit dip amid supermarket price war

SAINSBURY’s has forecast that profits from its retail operations may remain flat or decline over the coming year as it continues to reduce grocery prices.

The company expects to generate £1bn in profit, with an underlying dip of around £36m, as competition intensifies across the supermarket sector.

The retailer’s move comes amid expectations of a price war triggered by Asda, which, under new executive chairman Allan Leighton, announced a plan to cut grocery prices to regain market share.

Tesco has also acknowledged it could suffer a significant financial impact if forced to reduce prices further, BBC reported.

Sainsbury’s chief executive Simon Roberts said, “We're in the strongest position we've ever been [on price competition] and we intend to stay there.”

The company believes its losses from price cuts will be relatively minor compared to Tesco’s potential £400m hit.

Bernstein analyst William Woods, according to the BBC, said the forecast leaves Sainsbury’s with “wiggle room” to compete with rivals if necessary.

Sainsbury’s revealed full-year sales rose by 3.1 per cent to £31.5bn, while pre-tax profit increased from £277m to £384m.

However, fuel sales dropped 8.9 per cent to £4.7bn due to reduced demand and lower fuel prices driven by falling commodity costs in a competitive market.

Sainsbury’s also reported continued decline at Argos, although it said web traffic had improved.

Official data released on Wednesday showed that falling motor fuel prices helped bring UK inflation down to 2.6 per cent in March from 2.8 per cent in February.