Sainsbury’s share price up 4% as CEO comes under pressure after blocked Asda merger

Sainsbury's CEO Mike Coupe is under increased pressure to drive growth after the supermarket recorded a 41% decline in pre-tax profit to £239 million in its annual results on Wednesday.

However, the supermarket’s share price climbed more than 4% on Wednesday morning, with it able to record a 7.8% increase in underlying profit, driven by £220 million in cost savings amid tough market conditions.

The company also suffered another major setback last week when the UK Competition and Markets Authority (CMA) opted to block its planned merger with Walmart-owned Asda.

Sainsbury’s CEO was quick to reassure shareholders that the business will continue to see growth despite the failed merger, with the supermarket set to increase and accelerate investment in its core business across more than 400 stores.

‘£4.7 billion of our revenue now comes from our online businesses and we are increasing investment in technology to make shopping across Sainsbury’s, Argos and Sainsbury’s Bank as quick and convenient as possible,’ Coupe said. ‘We will also continue to strengthen our balance sheet and are making a new commitment to reduce net debt by at least £600 million over the next three years.’

Sainsbury’s results: key figures

Despite suffering a significant decline in pre-tax profit, Sainsbury’s revenue edged higher, hitting £29 billion, up from £28.5 billion last year.

Underlying earnings per share at the supermarket increased by 7.8% to 22p a share, allowing it to pay a final dividend of 7.9p a share, bringing its full-year pay-out to shareholders to 11p a share.

Meanwhile, net debt fell by £222 million to £1.6 billion, with the company’s retail free cash flow at £461 million, representing an increase of 6.7% over the year.

Blocked Asda merger costs Sainsbury’s £46 million

The failed Asda merger is a major blow to both supermarkets, but adding insult to injury, the blocked deal cost Sainsbury’s £46 million.

The news leaves the supermarket forced to come up with a new strategy to drive growth in what is a highly competitive market.

Shareholders were left disappointed by the lack of a plan B Sainsbury’s annual results, with its CEO facing pressure from investors to plot a new course to find growth in 2019.

Coupe told the BBC's Today programme: ‘Well, we draw a line under the past... The authorities blocked the [Asda] deal, but we think our business is adapting to the changing world of retail, and we will carry on investing in our business.’