Sainsbury’s expects challenging run-up to Christmas as households feel squeeze

Sainsbury's has warned of a "pretty challenging" market in the run-up to Christmas as households are "finding it tough" and food producers face rising costs. The UK's second biggest supermarket reported slower sales growth of 2.6% in the six months to 12 September, with growth almost halving to 1.9% in the second quarter from 3% in the first.

Shares in Sainsbury's slid by 3.7% on Thursday as the retailer revealed these figures. Strong online grocery sales – up 9% – and a 6% rise in sales of the retailer's premium own-label Taste the Difference range helped with growth, but this wasn't enough to offset broader challenges.

Government warning

Simon Roberts, the chief executive, called on the government not to "further aggravate" pressure on costs for business in this month's budget. He said it was "important this government does not repeat what we have seen in previous budgets" in raising business rates and employers' national insurance contributions.

After meeting government ministers last week, Roberts said he believed "this government is really listening to business" especially on helping to create more jobs for young people. He added that food inflation was not "anything like" some of the high levels forecast earlier in the year.

Financial performance

Pre-tax losses for the half year widened to £63m from £14m a year before. However, the company reported a 5.2% rise in underlying profit to £366m, excluding the Argos catalogue shop, which is in the process of being sold off. The deal is expected to complete in February and the businesses to be totally separated by 2029.

Sainsbury's said it now expects an annual underlying profit of at least £1.02bn, slightly more than the £975m previously outlined. Sales had slowed as shoppers kept a tight rein on the number of items they bought amid a "focus on the cost of living" and reined in spending on clothing and "big-ticket" items.

Future outlook

Roberts suggested high energy and fertiliser costs could push up food prices next year. He called for the government to increase tax breaks that support investment in technology on farms as the climate crisis is expected to lead to more hotter, drier summers.

Charles Allen, a senior retail analyst at Bloomberg Intelligence, said the figures suggested Sainsbury's was not expecting to increase profits in the second half of the year against a "tougher competitive backdrop as inflation returns and rivals prioritize sales growth". The retailer plans to open 10 supermarkets and 25 convenience stores by March.