* Sainsbury's posts third straight fall in annual profit
* Shares in Sainsbury's fall 5 percent after results
* To speed up plan to open 250 Argos Digital stores
* Pretax profit 581 million pounds in year to March 11
(Adds CEO, analyst comment, shares)
By James Davey
LONDON, May 3 British supermarket Sainsbury's
warned a challenging market meant it could take up to
five years to deliver sustainable profit growth, despite a
robust performance from general retailer Argos which it bought
Sainsbury's, which trails market leader Tesco in
annual sales, reported a third straight fall in annual profit on
Wednesday, hurt by price cuts and cost inflation, and confirmed
analysts' forecasts for another decline in 2017-18.
Last year Sainsbury's expanded in areas such as electrical
goods when it bought Argos-owner Home Retail for 1.1 billion
pounds ($1.42 billion), which it said has gone well so far.
"Our job is to build a business for the future," said Chief
Executive Mike Coupe, who outlined his strategy for the business
two and a half years ago.
Shares in Sainsbury's were down 5 percent at 265.5 pence at
1034 GMT, valuing the business at 5.8 billion pounds and taking
the year on year decline to nearly 7 percent.
"The UK grocery industry is one of the most challenging, if
not the most challenging, in the world ... (but) we think over a
three to five year period we can deliver strong and steady
profit growth," he told reporters.
Sainsbury's said Argos contributed a better than expected
profit of 77 million pounds in the second half and would deliver
a 160 million pounds boost to earnings six months early. It also
said it would speed up a plan to open 250 Argos Digital stores
in its supermarkets.
Sainsbury's made an underlying pretax profit of 581 million
pounds in the year to March 11, down from 587 million pounds
made the year before. The average forecast by analysts was 578
The result reflected intense price competition, driven by
German discounters Aldi and Lidl, as well as cost inflation,
offset by cost savings of 130 million pounds and the
contribution from Argos.
Group sales rose 12.7 percent to 29.1 billion pounds, but
Sainsbury's' own like-for-like sales fell 0.6 percent.
"Unlike its domestic rivals Tesco and Morrisons,
like-for-like sales at Sainsbury' have remained stubbornly
negative recently. Lower prices, weaker margins and a falling
market share. Not a good combination," said George Salmon,
equity analyst at Hargreaves Lansdown.
Morrisons and Tesco are both in turnaround mode after going
through disastrous periods while Sainsbury's market share has
remained broadly stable over the last five years.
Some analysts believe Sainsbury's is vulnerable to further
price cuts by Tesco and a recovering Asda and the supermarket's
Chief Financial Officer Kevin O'Byrne said he was comfortable
with an average profit forecast of 573 million pounds for
2017-18, meaning a drop for yet another year.
Some analysts also say Argos increases Sainsbury's exposure
to the threat of Amazon and to higher import costs at a
time when pressure on discretionary purchases is building as
inflation grows and wage growth is muted.
($1 = 0.7736 pounds)
(Editing by Kate Holton and Alexander Smith)