Alongside its annual results statement today, Sainsbury’s confirmed that grocery sales in its stores had increased significantly during the coronavirus outbreak. However, it is facing a hit of more than £500m to its profits this year due to costs associated with meeting extra demand and social distancing measures, together with falls in sales of general merchandise, clothing, and fuel.
The group stated that under its base case scenario the impact on profits would be broadly offset by stronger grocery sales and approximately £450m in business rates relief. That would mean underlying pre-profit for its current financial year would be relatively unchanged from the £586m figure recorded in 2019/20 period, which had fallen 2%.
Sainsbury’s forecasts are based on lockdown restrictions being eased by the end of June, but the business continuing to be disrupted until mid-September. It also assumes that consumer demand, particularly for general merchandise and clothing, would be impacted by weaker economic conditions thereafter.
Sainsbury has also deferred a decision on its dividend payment until later in the year and is cutting executive bonuses as it seeks to navigate the uncertainty caused by the pandemic. The dividend decision comes after Tesco faced criticism for paying out £635m to shareholders, despite being in line for £585m of rates relief.
During its fourth-quarter to 7 March, the group’s total sales were up just 1.3%. However, in the seven weeks to 25 April, this figure rose to 8% as consumers stockpiled food and other items. Total grocery sales jumped 12%, while general merchandise sales were 3% higher.
The general merchandise figure included 9% growth at Argos, which is currently operating as an online-only business, but a 22% fall in Sainsbury’s supermarkets. Clothing sales also plummeted 53%.
Chief Executive Mike Coupe, who will step down as CEO on 31 May to make way for Simon Roberts, told the BBC’s Today programme that the peak of sales “was crazy”.
“We sold more, for five days running, than we would normally sell in our busiest day at Christmas, that’s why you saw the gaps on the shelf.”
He added that amid the pandemic, the retailer had seen marked changes in shopper behaviour. “They’re coming less frequently and are buying about twice as much when they do come. Very much a return to the weekly shop, but beyond it.”
Sainsbury’s stated that demand had eased recent weeks after the initial spike in March. It is expecting to see high single-digit growth in grocery sales during lockdown, with low single digits thereafter and a return to “normal grocery market conditions” in the second half of its financial year.
Coupe paid tribute to the company’s staff during the crisis. “They have shown outstanding commitment and resilience over the past few weeks and I am in awe of their adaptability and the efforts they have made to continue to serve our customers,” he said.
In the year just ended, Sainsbury’s turnover was unchanged at £28.99bn with like-for-likes edging up 0.6%. Total grocery sales increased by 0.4%, while general merchandise sales were down 2.9% after a tough Christmas trading period.
NAM Implications:
- Key is the frenzied shopping resulted in only a £50m contribution to the bottom line (see paras 1&2).
- Important for NAMs to check fair-share re the above figures…
- …also keep in mind that the mults/food retailers benefited most from coronavirus demand.
- i.e. think of the state of other retailers…and the impact on your business.
