Sainsbury’s has reported a sharp drop in profits for its fiscal first half, with sales edging downwards as the roll-out of price cuts and new value ranges failed to provide a significant boost to trading.
For the 28 weeks to 21 September, group sales slipped 0.2% to £16.9bn, while retail sales (excl. fuel) were down 0.6%. Like-for-like sales (excl. fuel) declined by 1%.
Underlying pre-tax profits fell by 15% to £238m with the group blaming the combined impact of the phasing of cost savings, higher marketing expenses and tough weather comparatives with last year. Meanwhile, statutory profit plummeted from £107m to just £9m, due mainly to a one-off charge of £203m relating to its recently announced store closure plan.
However, Sainsbury’s noted that it recorded “positive momentum in grocery market share” in the second quarter, led by a strong consumer response to the launch of 123 new value brand products and lower prices. Total grocery sales were up 0.6% in the quarter, compared to a 0.5% decline in the first three months; General Merchandise sales were down just 2%, from a 3.1% slide in the first quarter; and Clothing sales rose by 3.3%, compared to a 4.5% drop.
CEO Mike Coupe noted: “We have created positive momentum across the business through strategic investments in our customer offer … We are investing in hundreds of Sainsbury’s and Argos stores, introducing new products and services and continually improving service and availability. As a result, customer satisfaction has increased significantly year on year.”
Looking ahead, Coupe said the chain still expects profits in the second half to be helped by “a normalisation of marketing costs and weather comparatives”, although it admitted that market conditions remain “highly competitive and the consumer outlook remains uncertain.”
Commenting on the results, Richard Lim, CEO of Retail Economics, said: “The sharp fall in profits may well reflect the phasing of cost savings, but blaming the weather and higher marketing expenses suggests there is significant pressure on profit margins bubbling under the surface. There’s no getting away from the fact that sales fell across all parts of the business reflecting tough market conditions.
“However, the integration of Argos appears to be progressing well. It offers a truly attractive proposition for customers who increasingly bounce across physical and digital channels, often at the same time. Despite the failed Asda takeover attempt, the store network still offers widespread UK coverage to support convenient online collections while continued investment in speedier deliveries puts them well ahead of most retailers.”
NAM Implications:
- City attention will focus on top and bottom line like-for-likes…
- …and until these improve, ‘the jury will remain out’.
- However, NAMs should optimise their Argos positions.
