Sainsbury’s Reports Dip In Q4 Sales; Highlights Cost Price Pressures

Sainsbury’s has posted another fall in underlying sales and warned that the impact of cost price pressures caused by fall in the value of the pound remains uncertain.

In a fourth quarter update for the nine weeks to 11 March, Sainsbury’s like-for-like retail sales slipped 0.5%, after having briefly returned to growth over the Christmas period. However, the group said that after adjusting for this year’s later fall of Easter, the outcome was in line with its third quarter when like-for-like sales rose 0.1%.

Sainsbury’s general merchandise sales were down by 4% over the quarter, impacted by the later fall of Mother’s Day and Easter this year. However, its groceries online operation grew by 7%, whilst total sales in its convenience business rose nearly 7% after the group opened ten new stores in the quarter.

The group described its food performance as “solid”, highlighting that it had extended its pre-prepared vegetable range and continued its strategy of reducing promotions in favour of lower regular prices instead, whilst cutting operating costs and food waste.

Meanwhile, its Argos division continued to perform well with like-for-like sales up 4.3%, boosted by strong growth in technology categories. The group revealed that it opened a further 11 Argos Digital stores in Sainsbury’s supermarkets during the period, bringing the total to 41. It also opened another Mini Habitat store, bringing the total to eight.

Chief Executive Mike Coupe stressed that he was pleased the group’s performance and that it was making good progress against its key priorities. However, he said the market remained “very competitive” and the impact of cost price pressures “remains uncertain”, adding: “We are well placed to navigate the external environment and remain focused on delivering our strategy.”

Commenting on the results, Neil Wilson of ETX Capital said Sainsbury’s was now clearly being squeezed from all sides. “Strip out Argos and these figures from Sainsbury’s don’t look so clever,” he said.

Wilson added: “Sainsbury’s did very well when Tesco and others were struggling but is now facing its own challenges. It must contend with all the sector-wide problems like falling margins and the sterling squeeze from suppliers.

“Falling margins and profits don’t look great when the market is growing.”

NAM Implications:
  • Time for Sainsbury’s to be the first multiple to really acknowledge the sector’s large space redundancy…
  • …and accelerate disposal of more large outlets.
  • …returning some proceeds to shareholders and switching the rest to developing Convenience and Argos/online…