Sainsbury warns on inflation and price competition threat; hikes Argos cost-savings

J Sainsbury plc (LON:SBRY) said it expected second-half profits to be lower than those in the first six months as it warned price inflation and continued competitive pressure would hit the business. The update came as the retailer unveiled a 10% drop in underlying profits to £277mln in the 28 weeks to September 24 alongside some ambitious plans for the recently-acquired Argos business. Pre-tax profits for the full-year are expected to be in line with forecasts, with Sainbury’s latest purchase contributing £55-£75mln to the bottom line. The plan is to have 30 Argos digital stores and 200 collection points in supermarkets by Christmas and 250 digital stores up and running in the next three years. The cost savings from putting the two businesses together are expected to hit £500mln annually by 2017/18 with synergies in the order of £160mln. Sainsbury reckons it can eke out a further £500mln if savings from 2018/19. Net debt was reduced by just under £500mln to £1.3bn. Investors will be rewarded with a 3.6p a share dividend. Sainsbury said the market remained competitive, which would continue to impact on margins as it fights the onslaught from discounters Aldi and Lidl as well as traditional rivals, including a revitalised Asda. “The full impact of the devaluation of sterling on retail prices is as yet uncertain,” it added