Sainsbury's is set to close down over 100 stores, while opening even more and relocating others as part of a new five-year plan.

The supermarket chain's quarterly update also issued a warning that its underlying half-year profits will endure a £50 million hit, blamed on the impact of cost cutting, weather and higher marketing costs.

Up to 70 Argos stores will close, while a further 80 will be moved into existing Sainsbury's stores. Up to 15 of its large supermarkets will shut, along with as many as 40 convenience stores, but the overall store estate should grow with a commitment to open 10 big stores and around 110 convenience outlets.

Sainsbury’s also announced that its financial services arm would stop new mortgage lending immediately.

The new strategy is aimed at cutting costs by around £500 million over the next five years, following the failure of its £12 billion takeover attempt of rival Asda.

The trading update revealed that like-for-like grocery sales rose by 0.6 per cent in the second quarter, but this was offset by a two per cent drop in general merchandise sales – which includes the Argos and Tu businesses.

Chief executive Mike Coupe explained: “We have focused on reducing prices on everyday food and grocery products, and expanding our range of value brands, which have been very popular with customers.

“At the same time, we are investing significantly in our supermarkets, driving consistent improvements to service and availability," he continued. “Argos continued to grow market share in key categories, but sales were impacted by reduced promotional activity and the timing of new product releases in gaming and toys.”

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