Asda posts profit tumble as it prepares for Sainsbury’s deal
Walmart’s decision to sell Asda to rival Sainsbury’s was given weight on Thursday as fresh accounts showed profits tumbled at the supermarket chain last year.
Asda’s operating profits fell by 13% to £735.4 million for the year to December 31. Typically, the US giant doesn’t disclose Asda’s exact profits and revenue figures but newly-released accounts give a detailed breakdown of its earnings ahead of the £14 billion deal with Sainsbury’s.
The union, which comes at a time of dramatic shifts in the industry as more shoppers switch to rivals, will create Britain’s biggest grocer with £51 billion in revenues and 330,000 staff, leapfrogging frontrunner Tesco.
Asda argued that its recovery was on track despite the dent in profits. Its revenues edged up to £22.2 billion from £21.6 billion and same-store sales returned to positive sales growth of 0.4% — a big jump from its 5.7% fall last year.
The company said that ploughing extra cash into keeping prices down coupled with better service has helped lure more shoppers to its stores.
“Our accounts reflect a solid performance and a strong, well-managed business,” said Asda boss Roger Burnley. “During the year momentum returned, driven by a series of planned investments in lowering prices, further improving quality and innovation in our own brand ranges.”
But industry figures this week painted a bleak picture for both supermarket chains. Sainsbury’s market share was down slightly for the 12 weeks to May 20, while Asda’s was flat.
The merger will be scrutinised by the competitions watchdog, which could demand the grocers sell some stores which are near each other. Walmart will get almost £3 billion from the deal and will keep a 42% stake after the merger, with a 29.9% voting stake.
"We’ve got merger weakness. Sainsbury’s is losing market share and Asda has just reported a fall in profits. The results confirm that Walmart wants out of the UK and the best way to do it is via Sainsbury’s,” said Shore Capital’s Clive Black.
