Sainsbury’s expects to take a £500m hit to annual profits due to the cost of keeping open during the pandemic – and may have to close some stores if the situation worsens.
Britain’s second-biggest supermarket chain – which also owns Argos – said earnings for the year ahead would be hit by the cost of keeping customers and staff safe as well as lower fuel, clothing and general merchandise sales.
That will be offset by the government’s temporary axing of business rates during the crisis as well as stronger grocery sales, meaning overall little change in the group’s bottom line.
But Sainsbury’s added that, if the level of social distancing measures and staff absences were even higher than expected, it might have to “restrict the number of sites that we are able to keep open and/or services we are able to offer”.
The details were set out as the supermarket published annual results showing a 26% rise in full-year profits to £255m for the year to 7 March, though like-for-like sales dipped 0.6% over the year.
Grocery sales grew strongly in the weeks leading up to the lockdown and were also initially ahead at Argos, though the latter business has since been hit by the closure of all its standalone stores.
Shares fell 4%.
Sainsbury’s said the ongoing impact of the pandemic remained uncertain. It is working on the basis that the lockdown will start to ease by the end of June, but that its business will continue to be disrupted until mid-September.
“We additionally assume that consumer demand, particularly for general merchandise and clothing, will be impacted by weaker economic conditions thereafter,” it added.
Like rivals, Sainsbury’s has benefited from business rates relief announced by the government to ease the pressure on companies that have seen trading collapse – in its case to the tune of £450m.
But it has deferred decisions on its dividend payout until later in the financial year – after rival Tesco faced criticism for paying out £635m having benefited from the tax break.