J Sainsbury PLC (LSE:SBRY) has said underlying profits should surpass £1 billion over the coming year following a strategic shift to focus on grocery sales, but the market felt it was being overly cautious and sent the shares lower.
Sainsbury’s guided for underlying operating profit to grow between 5-10% in the year ahead to between £1.01 billion and £1.06 billion in a trading update on Thursday.
This comes after reporting a £701 million underlying pre-tax profit for the 52 weeks ended 2 March, in 1.6% higher year over year and just ahead of previous guidance for the figure to sit as high as £700 million.
Overall group post-tax profit was down 33.8% at £137 million, with per-share earnings falling 34% to 5.9p.
"We said we'd put food back at the heart of Sainsbury's and that's what we've done,” chief executive Simon Roberts said, “our food business is firing on all cylinders”.
Grocery sales were up 9.4% to help group sales climb 3.4% to £36.34 billion, offsetting a 0.5% decline in general merchandise and 6.4% fall in clothing sales.
Retail excluding fuel was up 6.8%, with fuel sales falling 14.3% on the back of lower pump prices.
Higher grocery sales reflected volume growth as inflation subsided, with Sainsbury's boasting that it "passed on less inflation than our competitors".
In its financial services arm, lower net interest margins saw profit fall 37% to £29 million, with a loss expected from the division in the new fiscal year.
A flat full-year dividend of 13.1p per share was proposed, while a £200 million buyback, announced in February, will start on Friday.
“Strong grocery momentum has continued into the new financial year,” the supermarket added, with volume growth ahead of the market expected, aided by potentially better weather.