Sainsbury’s defends £1.4bn Argos takeover as profits slip

Mike Coupe said that the currency pressures were not “unique” to Sainsbury’s or Argos and that the supermarket would benefit from being a larger business. “In my experience scale is an advantage and so it is reasonable to expect that we will perform better than our rivals”, he said.

Mr Coupe’s rationale for the takeover is to help shift Sainsbury’s towards modern online and convenience shopping habits . “Underneath what we are buying [with Argos] is the ability to deliver very quickly to wherever shoppers are in the UK”, reports The Telegraph.

However, investors focused on the 10pc fall in pre-tax profits to £372m during the 28 weeks to 24 September. Like-for-like sales slipped by 1pc as intense competition in the food retail sector persisted.

Total group sales increased by 1.8pc to £12.6bn, helped by an 8pc jump in online sales, a 6.6pc rise in its convenience shops and a £281m contribution from three weeks worth of Argos sales after the deal completed.

Mr Coupe said that it was still “uncertain” how a lower pound would impact shop prices following a two-year stretch of food deflation before adding that Sainsbury’s was already looking to switch some of its suppliers to offset rising import costs.

“Broadly speaking people haven’t experienced any inflation or changes to disposable income, with the exception of fuel. I think that people will spend at Christmas in the same way as they have done over the past five years”.

Following a furore over an attempt by the makers of Marmite and Birdseye Fishfingers to hike prices, Mr Coupe warned that Sainsbury’s would do “everything it can” to avoid passing on higher costs.

“In the case of the large multinational suppliers, all I would say is that their profits are substantially higher than those of supermarkets, so I would encourage them to mitigate the cost pressures that they feel through their supply chain”, said Mr Coupe. He added that a jar of Marmite in Sainsbury’s was the same price as in 2014.

Around half of Sainsbury’s food is imported and roughly 60pc of Argos toys and electricals are imported from Asia and paid for in dollars. However, Mr Coupe said that Argos had currency hedges in place until June.

Sainsbury’s said that it wants to open 250 Argos stores inside Sainsbury’s shops within three years time but would not clarify how many high street Argos stores would be shut. However, the average lease length of Argos shops are three and a half years.

The retailer also announced a further £500m of cost savings to be realised from 2018 and said that it will generate around £160m in synergies from the Argos deal.

Sainsbury’s net pension deficit also rose to £1.06bn compared to £389m following the post-Brexit sterling slump and movement of yields. As a result, it will increase payments by £6m to £84m.