By James Davey
LONDON (Reuters) - British supermarket Sainsbury 's (L:SBRY) is expected to post on Wednesday its first annual profit fall since 2005, hurt by an industry price war that shows no sign of abating.
Sainsbury's, along with rivals Tesco (L:TSCO), Asda (N:WMT) and Morrisons (L:MRW), is grappling with food price deflation and an intensifying price war launched to stem the flow of shoppers to discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL].
All are also having to adapt as consumers shop more frequently and locally, and buy more online.
"We expect the group to confirm more pain is likely in the year ahead, with further like-for-like (sales) declines the key challenge," said Jefferies analysts.
Sainsbury's shares have fallen 17 percent over the last year.
Analysts' on average expect Sainsbury's to report underlying pretax profit of 659 million pounds for the year ended March 14, down 17 percent from the 798 million pounds made in 2013-14.
The fall reflects Sainsbury's announcement in November to invest an additional 150 million pounds in lower prices, as well as its absorption of record levels of food deflation in categories where it trades strongly, such as produce, dairy, fresh ready meals, meat and fish.
In March, the firm reported a 1.9 percent fall in fourth quarter like-for-like sales, a fifth straight quarterly decline.
Chief Executive Mike Coupe reckons price reductions financed by cost cutting, simpler promotions and a focus on product quality and innovation, as well as expansion of its non-food, online and convenience business, can combat the discounters' threat and that of market leader Tesco, which is showing signs of recovery under new boss Dave Lewis.
However, Coupe still expects supermarket like-for-like sales in the sector to fall for the next few years and some analysts are downbeat on the firm's prospects.
"We remain unconvinced that Sainsbury's has the strategy to overcome its relative scale disadvantage versus Tesco, deteriorating industry conditions and a challenged balance sheet," said HSBC (LONDON:HSBA)'s David McCarthy.
Analysts on average forecast a full-year dividend of 12.9 pence a share, down 25 percent.
Coupe is also having to deal with an unwelcome distraction after it emerged he is contesting a two-year jail sentence handed down by an Egyptian court in relation to a business dispute Sainsbury's had 14 years ago. Sainsbury's has described the sentence as "groundless".
Meanwhile, Morrisons' new CEO David Potts will make his first public outing on Thursday to announce first-quarter sales.
Barclays (LONDON:BARC) and Jefferies analysts expect a 3.3 percent fall in like-for-like sales. They fell 2.6 percent in the previous quarter.
