Higher profit outlook, lower spending forecast
The retailer now expects full-year underlying operating profit excluding Argos of £1.025 billion to £1.065 billion. The upper limit is unchanged, but the lower end previously stood at £965 million. Management said the new midpoint implies about 2% profit growth in the second half.
Hargreaves Lansdown analyst Aarin Chiekrie attributed the share-price decline to an upgrade that merely matched market expectations and the absence of a new share buyback. Sales were slightly below expectations, he said, as slower price growth tempered the benefit of further market-share gains.
Sainsbury's also lowered two forecasts for 2026/27. It expects underlying net finance costs for continuing operations of about £300 million to £310 million, down from around £320 million. Continuing cash capital expenditure is forecast at £750 million to £800 million, rather than £800 million to £850 million. The free cash flow outlook remains above £500 million.
Grocery and online sales advance
First-half underlying sales totaled £14.0 billion, a 2.6% increase excluding fuel and discontinued Argos operations. Grocery grew 2.9%, while General Merchandise & Clothing declined 3.4%. Including fuel, total sales from continuing operations increased 4.5%.
Management reported faster growth in online grocery, where sales rose 9% overall. On the earnings call, it said OnDemand rapid-delivery sales increased 27%, while its first-party ChopChop platform grew 34%.
Hargreaves Lansdown said the expansion of ALDI Price Match and Nectar Prices to more products was helping retain customers. It also noted an increase in shoppers choosing Sainsbury's for their weekly grocery trip.
Worldpanel data available before the results put Sainsbury's share of the UK grocery market at roughly 15.3%, compared with market leader Tesco's 27.9%, according to Yahoo Finance UK and PA. Sainsbury's attempted to merge with third-largest rival Asda in 2019, but competition regulators blocked the £7 billion deal.
Cash generation and shareholder payments
Volume growth and cost savings helped operating profit grow faster than sales. Underlying earnings per share increased 10.4%, also benefiting from a lower underlying tax rate and the reduction in shares outstanding through buybacks. Return on capital employed reached 9.2%, an improvement of 20 basis points.
First-half free cash flow was £333 million, up £57 million. Net debt, including lease liabilities, increased £0.1 billion to £5.6 billion, while net debt to EBITDA remained broadly steady at 2.6 times. That ratio sits within Sainsbury's target range of 2.4 to 3.0 times.
The company said its Next Level plan remains on course to deliver £1 billion in cost savings, bringing savings over the past six years to £2.3 billion.
Sainsbury's expects to return more than £600 million in cash to shareholders this year. It has bought back £200 million of shares under its £300 million program and plans to complete the balance in the second half. The interim dividend remains 4.1 pence per share.
Argos disposal remains on schedule
The sale of Argos to Swift Partners is still expected to close in February 2027. Hargreaves Lansdown said the disposal should simplify Sainsbury's, make earnings more predictable and give management more time and investment capacity to devote to groceries, rather than deliver an immediate transformation in profit.
Under the agreement announced July 31, 2026, Sainsbury's expects at least £120 million in cash proceeds: at least £70 million at completion and £50 million in deferred payments over the next three years. Separation costs are expected to absorb those receipts.
The company forecasts a reduction of around £250 million in lease-adjusted net debt and a non-cash impairment of about £350 million. It expects the transaction to be broadly neutral to underlying operating profit and to increase underlying earnings per share by a low-single-digit percentage.
Sainsbury's will keep responsibility for the Argos defined benefit pension scheme. The scheme reported an IAS surplus of £143 million as of February 28, 2026.
At the sale announcement, Argos operated 667 UK shops: 201 standalone locations and 466 inside Sainsbury's stores. It also had more than 450 collection points. All of its nearly 14,000 employees were to move to Swift Partners.
The disposal follows Sainsbury's £1.4 billion purchase of Argos, Habitat and the other Home Retail Group brands in 2016. It sold the Argos financial services business, which runs the Argos card, for around £720 million in 2024. Talks with Chinese online retailer JD.com over the remaining Argos business ended without a deal in September 2025.
Valuation and sustainability risks
Although Hargreaves Lansdown welcomed the sharper grocery focus, it judged the shares fairly valued. Its assessment was that the above-average valuation already reflects much of the progress in food, while rising costs and intense competition remain constraints. Grocery rivals continue to invest in prices, quality and convenience.
LSEG Datastream figures based on the previous day's closing prices put Sainsbury's forward price-to-earnings ratio for the next 12 months at 14.2, compared with a 10-year average of 12.1. Its prospective dividend yield for the same period was 4.1%, versus a 10-year average of 4.8%. Yields can change and do not reliably indicate future income.
Sustainalytics assesses Sainsbury's management of environmental, social and governance risks as strong. Hargreaves Lansdown's review highlighted the explicit link between executive pay and ESG targets, but also identified shortcomings: disclosures do not meet leading reporting standards, and the environmental policy is weak, a concern given the company's extensive use of packaging and freight.
