Sainsbury’s announced today that it would pay out a special dividend to shareholders and promised its staff another bonus after posting bumper first-half sales figures as shoppers flocked to its stores and online businesses during the pandemic.
Over the 28 weeks ended 19 September, total group retail sales were up 7.1% with like-for-like growth of 6.9% (+8.2 in Q1 and +5.1% in Q2).
Total grocery sales climbed 8.2%, whilst general merchandise sales rose 7.4%, including Argos up almost 11%. The group benefitted from a surge in digital sales which jumped 117% to £5.8bn – nearly 40% of total sales. Grocery sales online were up 102%.
Despite benefitting from £230m in business rates relief, offset by £290m of Covid-related safety costs, Sainsbury’s made a pre-tax loss of £137m. This reflected £438m of extra costs, related to Argos store closures and other measures. Excluding all these one-off costs, underlying profits were up 26.5% to £301m.
Alongside today results, the group unveiled a strategy overhaul that is expected to “drive an inflection in underlying profit momentum” with earnings in the year to March 2022 forecast to exceed those reported in its last financial year, which were not impacted by the pandemic.
Changes being implemented by new Chief Executive Simon Roberts include closing more standalone Argos store and reducing costs amid a wider refocus on the group’s core food business.
He also wants to keep lowering the chain’s prices, accelerate food innovation and grow its online grocery services. The rate of new convenience store and neighbourhood hub openings will also be increased over the next three years.
Looking ahead, Sainsbury’s stated that grocery and general merchandise sales had remained strong to date in the second half of the year and it expected its Financial Services unit to return to profit in the second half. However, it warned that retail profits will also reflect a tougher comparative base, with investment in improving its price competitiveness and ongoing costs associated with the virus-related safety measures.
“We cannot fully predict the impact of COVID-19 and lockdown restrictions on retail sales and costs for the remainder of the second half of the year but our current assumptions would result in full year group underlying profit before tax increasing by at least five per cent year on year,” the group said.
Senior markets analyst at Hargreaves Lansdown, Susannah Streeter, said of the update: “J Sainsbury clearly has a razor-sharp focus on growing its online business to meet customer demand.
“Given that Christmas shopping opportunities will be so limited elsewhere, the food and gift mix it offers in its physical store is also likely to help keep tills ringing during lockdown mark 2.”
Thomas Brereton, a senior retail analyst at GlobalData, added: “Sainsbury’s results are a pleasing read. Strong performances across its core food business and Argos have more than covered losses across clothing and non-Argos general merchandise, with operational streamlining (a focus at Sainsbury’s over the past 18 months) allowing for a 27.0% rise in operating profit. Stakeholders should also be happy with the end financial result, with an announcement today of a 3.2p interim dividend per share as well as a 7.3p special dividend per share.
“Sainsbury’s core food strategy (Food First) appears to be a reasonable one, with a joint focus on lowering core prices, product innovation and online fulfilment. However, Sainsbury’s must be careful not to become too embroiled in a value battle with the likes of Tesco and Morrisons – one that, given Sainsbury’s slightly more premium reputation, Sainsbury’s will struggle to come out on top. Instead, Sainsbury’s should pour efforts into its product innovation, positioning itself as the supermarket of choice for those shoppers looking for meal inspiration. Sainsbury’s could take this concept even further, offering its growing base of online food shoppers better schemes to experience a wider variety of its new products.”
NAM Implication:
- See these results reflected in the Team changes news
