Analysts are predicting underlying pre-tax profits for Sainsbury’s to be about £578m in its full-year results tomorrow, down from £587m last year.
City observers are concerned that the company is leaning too heavily on its recent acquisition of Home Retail, which includes Argos and Habitat. Argos delivered growth of 4.3 per cent in the fourth quarter, like-for-like food sales in the same period fell 0.5 per cent.
Neil Wilson, senior market analyst at ETX Capital pointed out that relying on Argos might not be sustainable. He said: “Argos sources a lot of its goods from abroad and the impact of weaker sterling could wipe out cost synergies from real estate and store integration.”
But Sainsbury’s CEO Mike Coupe has previously dismissed currency concerns, arguing that all retailers will face the same pressure.
A UBS report into UK food retail released last month said that a shift in price strategy means the retailer has lost bargain-hunting customers but gained loyalty amongst core shoppers.
After like-for-like sales growth of 2.5 per cent over Christmas, analysts are expecting a quieter first quarter, with Merrill Lynch predicting 1.3 per cent growth.
The UBS report shows that Morrisons has been the most-affected of the “big four” supermarkets by new openings of Aldi and Lidl, reflecting analyst concern that discounter stores are snapping at the heels of Morrisons and Asda.