J Sainsbury plc expects profits to rise this year on the back of strong food sales, as the company prioritises groceries above clothing and general merchandise.

Britain’s second-biggest grocer forecast underlying operating profit of as much as £1.06 billion from retail in 2024-25, on Thursday, up from £966 million in the year through March 2.

However, general merchandise sales fell 0.5% and revenues from clothing were down 6.4%.

Shares slipped about 2%, having dropped 6% since this time last year.

In February, Sainsbury’s said it will cut costs by £1 billion and buy back shares as part of a “food first” policy of focusing on its core business, limiting the amount of store space it devotes to clothes and other merchandise.

Red Sea

Sainsbury’s limited its range of certain products following trade disruption in the Red Sea, triggered by attacks on cargo ships by Yemen’s Houthis.

“We had a bit of disruption in clothing supply in the fourth quarter,” said Simon Roberts, Sainsbury’s chief executive officer, during a call with journalists. “The team are working really hard with our freight companies to make sure that, with the new routing that’s in place, we try and minimise the impact.”

Sales of homeware, furniture and children’s products were also affected by Britain’s unusually cool, wet summer and mild winter, Sainsbury’s said.

The dominant food division has been performing well, nonetheless, as loyal customers flock to its Nectar Prices program, which started last year.

“Sainsbury’s promotion strategy, including Nectar prices and Aldi Price Match, has been very successful in making customers buy more and spend more,” said Orwa Mohamad, an analyst at Third Bridge.

Rival Tesco plc also said this month that its retail profit will likely edge up as easing cost pressures allow the supermarket chain to cut prices and attract budget-conscious shoppers.

Like other supermarkets, Sainsbury’s has been trying to keep prices low to compete with discount rivals such as Aldi and Lidl. It holds 15.3% of the market, behind Tesco pplc at 27.4%, according to research firm Kantar’s latest data.

Sainsbury’s said on Thursday that it expects to provide an update on its exit from banking in November. The supermarket announced plans for a “phased withdrawal” of the division earlier this year.
 

  - Bloomberg