British supermarket chain Sainsbury's reported a 39% fall in annual underlying profit on Wednesday as strong food sales during the COVID-19 pandemic were outweighed by extra costs and a decision to forgo business rates relief.
But Sainsbury's, the country's second largest supermarket group after Tesco, said it had started its new financial year strongly and forecast a big rebound in profit.
The company made an underlying pretax profit of £356 million ($494 million) in the year to March 6, in line with its guidance of "at least" 330 million pounds but down from the £586 million it made a year earlier.
Grocery sales rose 7.8%, general merchandise sales were up 8.3% and online sales doubled, but the company said it incurred an extra 485 million pounds in costs due to the pandemic.
It also returned business rates relief offered by the government worth about £410 million.
Shares in Sainsbury's have increased 7.4% so far this year, partly buoyed by bid speculation after Czech billionaire Daniel Kretinsky increased his holding to 10%.
Sainsbury's three major domestic rivals - Tesco, Asda and Morrisons - have all enjoyed strong sales over the last year as coronavirus restrictions closed the hospitality sector for long periods and forced many people to work from home.
However, they have also had to endure the costs of additional workers, staff sick pay and in-store measures to deal with the pandemic.
Earlier this month, Tesco reported a 20% drop in annual profit, while last month Morrisons reported a halving of profit.
Sainsbury's said like-for-like sales, excluding fuel, rose 11.3% in its fiscal fourth quarter, having increased 8.6% in the third.
It said it was comfortable with analysts' consensus forecasts for underlying pretax profit in 2021-22 of about £620 million.
"Like our customers, we are all looking forward to things feeling more normal over the coming months and getting excited about a summer of celebration, but we are also cautious about the economic outlook," Chief Executive Simon Roberts said.
Sainsbury's upgraded its four-year net debt reduction target from £750 million to at least £950 million and is paying a full-year dividend of 10.6 pence.