Sainsbury’s says impact of Iran war may lead to drop in profits this year
TL;DR
Sainsbury’s warns that profits may decline this year due to the Iran conflict affecting customer budgets and increasing business costs. The company reported a slight profit increase last year but faces uncertainty moving forward.
Key points
- Sainsbury's warns of potential profit decline this year
- Conflict in the Middle East affecting customer budgets
- Reported a 1.1% increase in annual profits to £1.03bn
- Profit guidance for this year is £975m to £1.03bn
- Uncertainty over the war impacts profit predictions
Sainsbury’s has warned that profits could fall this year as the conflict in the Middle East squeezes customers’ budgets and pushes up business costs.
The supermarket group said the conflict “will impact both our customers and our business” and it was unclear how large the effect would be.
The company reported a 1.1% increase in annual profits for the year to 28 February – just as the US-Israeli attacks on Iran began – at £1.03bn, helped by ending losses from its financial services arm.
Sainsbury’s said uncertainty over the war meant it was unclear whether profits would be marginally higher or lower than its last financial year. It predicted it would make underlying profit of £975m to £1.03bn.
“The duration and extent of these impacts is very uncertain and this is reflected in our profit guidance,” it said.
Simon Roberts, the chief executive of Sainsbury’s, said: “The conflict in the Middle East means customers are even more focused on the cost of living and we are absolutely committed to making sure everyone gets the best possible value when they shop with us.”
The impact of the Iran war on retailers was also evident at WH Smith. On Thursday, the company – which has stores in airports and railway stations – cut its profit forecast for the year ahead by about £10m to £90m-£105m “in light of the uncertainty arising from the conflict in the Middle East” and “reflecting the impact on passenger numbers and weaker consumer confidence”.
Sainsbury’s, which also owns Argos and Habitat, increased annual sales by 4.3% to almost £30bn.
Sales at Argos rose only 0.7% as the group said it faced “a highly competitive and subdued general merchandise market, volume growth was largely offset by pricing pressure and higher participation of lower-ticket items”.
The UK’s second largest supermarket said it had gained the highest market share in a decade as it had invested in keeping prices down despite cost inflation.
Roberts said: “Rather than pass through the full extent of cost inflation, we invested to sustain the strength of our competitive position while also refreshing stores, improving digital experiences and increasing colleague pay by 5%.”
The group is using more robots and automation in warehouses for Sainsbury’s and Argos and has launched an “AI centre of excellence” to promote adoption of the technology across the business including in customer service and improving the supply chain.
Sainsbury’s said it expected to open 10 new supermarkets this year and 20 new convenience stores. It opened 10 supermarkets and 33 convenience stores last year.
Q&A
How is the Iran war affecting Sainsbury's profits?
The Iran war is squeezing customer budgets and increasing business costs, leading Sainsbury's to warn of potential profit declines.
What were Sainsbury's profits for the last financial year?
Sainsbury's reported annual profits of £1.03 billion for the year ending 28 February, a 1.1% increase from the previous year.
What is Sainsbury's profit guidance for this year?
Sainsbury's predicts an underlying profit of £975 million to £1.03 billion for the current financial year, amid uncertainty due to the conflict.
