May 4, 2016 / 6:55 AM / 2 years ago

UPDATE 2-UK supermarket Sainsbury's says more price cuts on the way

* 2015-16 profit falls 14 pct, but beats forecast

* Sees food price deflation through summer and beyond

* Shares fall as much as 5.8 percent (Adds CEO, analyst comments, Kantar link, shares)

By James Davey

LONDON, May 4 (Reuters) - British supermarket Sainsbury’s said on Wednesday it expected to cut more prices and didn’t see an improvement in the industry’s tough trading conditions any time soon.

Sainsbury’s has shown greater resilience to competition from German discounters Aldi and Lidl than its traditional rivals -Tesco, Asda and Morrisons.

It beat analysts’ profit forecasts for its 2015-16 financial year on Wednesday and said its strategy was working well.

But earnings were still down for a second straight year, and the company sounded cautious about industry prospects, echoing market leader Tesco last month.

Shares in Sainsbury’s, which last month agreed a 1.4 billion pounds ($2 billion) takeover of Argos-owner Home Retail , fell by as much as 5.8 percent.

“We harbour concerns that Sainsbury’s maybe complicating its business through the Argos acquisition just as its largest competitor Tesco UK is ‘getting its act together’,” said Shore Capital analyst Clive Black.

Sainsbury’s Chief Executive Mike Coupe said an industry hit by falling prices would remain tough for the foreseeable future.

“We’re certainly indicating that we’d expect deflation to continue through the summer and clearly that has a significant impact on our sales line,” he told reporters.

That deflation reflects a combination of foreign exchange moves, commodity price falls and supermarket price cuts, including by Sainsbury’s as it seeks to narrow the price gap with the discounters.

“We would expect to continue to sharpen our overall prices over the next period of time,” said Coupe.

Last week, Sainsbury’s launched another wave of reductions. Examples included whole chickens reduced to 2.95 pounds from 3.50 pounds and a bottle of bleach to 40 pence from 75 pence.

In March, Sainsbury’s reported fourth quarter like-for-like sales growth, excluding fuel, of 0.1 percent - its first quarter of growth in over two years.

Its supermarkets recorded both like-for-like transaction and volume growth as customers responded to lower regular prices, better product quality and availability and improved service.

On Wednesday, Sainsbury’s reported an underlying pretax profit of 587 million pounds for the year to March 12, ahead of analysts’ average forecast of 574 million but down from 681 million in 2014-15. Group sales fell 1.1 percent to 25.8 billion pounds.

It said it was on track to deliver its three-year 500 million pounds cost saving programme by the end of 2017-18.

Separately on Wednesday, monthly industry data showed Sainsbury’s was the best performing of Britain’s big four grocers and the only one to hold market share.

$1 = 0.6904 pounds Editing by Kate Holton and Mark Potter

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