J Sainsbury PLC (LSE:SBRY) shares fell as it reported a drop in annual profits, which it blamed on pressure to keep prices down in a competitive grocery market.
The supermarket group's retail underlying operating profit fell 1.1% to £1.025 billion for the 52 weeks to 28 February 2026, despite sales growth of 5.2% across its core grocery business.
Underlying pre-tax profit of £718 million was up 1.3% but lower than the £730 million that analysts expected.
The decline reflects a deliberate decision not to pass on the full extent of cost inflation to shoppers, Sainsbury’s said, with a choice to increase spending on pricing, staff pay and store improvements.
Total retail sales increase 4.3% to just under £30 billion, with volume growth and market share gains in grocery. Argos sales inched up 0.7% to £4.1 billion, while fuel sales fell 8.2% to £3.6 billion.
Statutory revenues rose 2.7% to £33.65 billion, while profit after tax on continuing operations fell 1.7% to £414 million.
The dividend was nudged up 0.7% to 13.7p and a £300 buyback was announced, including an additional £100 million from the proceeds of selling Sainsbury's Bank last year.
Chief executive Simon Roberts said the group had outperformed the market for the sixth year in a row.
"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%."
He pointed to rising costs across the FTSE 100 group's operations, alongside a more competitive backdrop as supermarkets battle to attract price-conscious shoppers.
Looking ahead, Sainsbury’s expects underlying operating profit of £975-1,075 million for the current year, with uncertainty linked to the conflict in the Middle East and its impact on costs and consumer behaviour. It is confident of generating retail free cash flow of more than £500 million.
The shares fell 5.2% tro 335p in early trades on Thursday.
"There is more than a tinge of disappointment accompanying these results, which came up against higher expectations leading into the numbers, and this is quite apart from any impact of the current Middle Eastern conflict," said market analyst Richard Hunter at Interactive Investor.
He felt the numbers were "solid" and "underneath the bonnet there are some signs of further progress," he said, pointing to grocery revenues as the likes of the group’s Aldi Price Match and Your Nectar Prices proving popular.
"Argos remains a work in progress after some years in the doldrums on reduced discretionary spend," he said. Accounting for 16% of group revenues, the unit "remains something of a thorn in the side for the group as a whole, although Sainsbury seems committed for the time being, taking 'determined action to accelerate the transformation of Argos', including a wish to improve the customer proposition".
** UPDATE: Adds share price, consensus estimates and analyst comment **