Sainsbury's warns costs from coronavirus could hit £500 million

Sainsbury’s today warned the cost of making its stores safe and a plummet in non-food sales will dent profits by around £500 million.

The grocer has seen food sales boom in recent weeks as shoppers first stockpiled in March and later switched their usual food spending from restaurants to supermarkets.

Sainsbury’s expects profits to be hurt by “significant costs” due to protecting staff and customers; weakened demand for fuel, clothing and general merchandise; and lower profits in its bank.

The group said the hit would be “broadly offset” by the spike in food sales and a year-long business rates holiday, worth £450 million. The company deferred its decision on whether to pay a dividend until later in the year and bosses will not take a bonus.

Rival Tesco sparked criticism after deciding to pay out £635 million to shareholders despite getting a business rates holiday worth £585 million from Chancellor Rishi Sunak as he attempts to help retailers. Food retailers have boomed due to panic buying while non-food stores have been forced to close.

Alongside the food sales surge, Sainsbury’s saw higher sales in its Argos arm in the early weeks of the virus crisis as “customer equipped themselves for home working and spending more time in their homes”. Its standalone Argos stores are now shut.

Sainsbury’s Bank is expected to be loss-making in the year to February 2021 but investors will be relieved that the company said the division “will not require capital injections from the group” amid the prospect of bad debts.

The retailer also posted a 2% fall in annual underlying pre-tax profits to £586 million for the 52 weeks to March 7, before the escalation of the virus’ outbreak. Sales were broadly flat at £32.4 billion, with annual same-store sales down 0.6%.

Chief executive Mike Coupe told the BBC stock levels were broadly back to normal after seeing empty shelves in March: “You can buy everything you need in our stores, you wouldn’t necessarily get the brand you’re used to but pretty much normal service has returned.”

Coupe said demand for food is still high. He said: “We are running at a higher lever than normal and we’d expected that because people are eating in rather than eating out for obvious reasons… they’re coming less frequently and they’re buying a lot more when they come, roughly twice as much as they were buying previously.”