Supermarket chain Sainsbury’s (SBRY) delivered in-line FY26 profits after outperforming the UK grocery market for the sixth year in a row.
Led by CEO Simon Roberts, the FTSE 100 giant also hailed a ‘positive start’ to FY27 with ‘continued strong grocery momentum’.
So why were shares in the groceries-to-general merchandise seller flashing red today? Well, Sainsbury’s warned uncertainty caused by the Middle East conflict is clouding the outlook and could drag profits lower this year.
The warning echoed concerns raised by arch-rival Tesco (TSCO) earlier this month. Investors were also unimpressed by subdued trading at the group’s Argos general merchandise business.
Middle East uncertainty weighs
‘The conflict in the Middle East will impact both our customers and our business,’ warned Sainsbury’s.
‘The duration and extent of these impacts is very uncertain and this is reflected in our profit guidance, where we currently expect to deliver total underlying operating profit of between £975 million and £1.075 billion.’
Total underlying operating profit edged 1.1% higher to £1.025 billion in FY26. So Sainsbury’s wider than usual guided range implies profits could fall year-on-year.
Grocery gains
Sales (excluding fuel) grew 4.9% to £25.9 billion in the year to February 2026. This included a 5.2% rise in grocery sales thanks to strong volume growth and market share gains.
Revenue growth at Argos was a meagre 0.7% as consumers cut back on discretionary spending. Argos’ strong summer performance was offset by ‘subdued consumer spending’ over Black Friday and Christmas, said Sainsbury’s.
What did the CEO say?
‘More and more customers are choosing Sainsbury’s for more of their shopping, trusting us to deliver great value day in day out,’ enthused Simon Roberts.
‘The conflict in the Middle East means customers are even more focused on the cost of living and we are absolutely committed to making sure everyone gets the best possible value when they shop with us.’
Shore Capital commented: ‘Whilst there is a risk that we could be shaving our estimates down the line should matters in the Middle East become more problematic for the British shopper, there is, we believe, no reason to do so at this juncture.
‘But we shall naturally review matters in due course, most probably commencing with the Q1 (update) on 30 June.’
Given the risk of further downgrades, we would avoid Sainsbury’s stock for the time being. Blaming the Middle East war for downbeat earnings guidance seems a bit of a stretch to us.
Sainsbury’s like-for-like sales growth (excluding fuel) had already slowed from 3.4% in Q3 to 3.1% in Q4, before the conflict began.
Roughly one quarter of Sainsbury’s sales are generated from the Argos general merchandise business. This means Sainsbury’s is more exposed than larger competitor Tesco to any war-induced discretionary spending slowdown.
On the positive side of the ledger, Sainsbury’s successful cost-cutting drive is helping the company sustain its strong competitive position in the face of cost inflation.
Read the press release here: https://corporate.sainsburys.co.uk/investors/
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