By Saabira Chaudhuri 

J Sainsbury PLC on Wednesday reported its first drop in full-year underlying profit in a decade as the company reeled from the impact of a fierce price war that has put immense pressure on all of Britain's large grocers.

Group sales, excluding value added tax, edged down 0.7% in the 52 weeks ended March 14 to GBP23.78 billion ($36.12 billion). Underlying pretax profit, which strips out one-time items and pension expenses, dropped 15% to GBP681 million.

Sainsbury reported a full-year pretax loss of GBP72 million, including one-time charges, compared with a profit of GBP898 million a year earlier.

"The U.K. marketplace is changing faster than at any time in the past 30 years which has impacted our profits, like-for-like sales and market share," said Chief Executive Mike Coupe. The results mark the first year that Mr. Coupe has run Sainsbury after longtime CEO Justin King stepped down.

The results come as analysts have predicted Sainsbury will suffer as rival Tesco PLC's performance begins to improve. HSBC analyst David McCarthy has said he is "unconvinced that Sainsbury has the strategy to overcome its relative scale disadvantage versus Tesco, deteriorating industry conditions and a challenged balance sheet."

The U.K.'s "big four" chains--Tesco, Wal-Mart Stores Inc.-owned Asda, Sainsbury and Wm Morrison Supermarkets PLC--have been losing customers to discount chains such as Aldi and Lidl, which are rapidly expanding and benefiting from an improving customer perception of quality. In a bid to win back market share, Sainsbury and its rivals have been slashing prices and cutting management jobs as they put more staff on the shop floor.

Sainsbury in November outlined a plan to save GBP500 million over the next three years and has said it would cut hundreds of jobs as part of the process. The grocer has also said it would pour GBP150 million into cutting prices.

The company on Wednesday proposed a full-year dividend of 13.2 pence, down 24%.

Sainsbury's banking unit marked a relative bright spot, with operating profit up 17% to GBP62 million. However, the company said its total capital costs associated with its transition into full ownership of the bank are expected to increase by between GBP80 million and GBP120 million.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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