The Sainsbury’s group raised its full-year profit forecast today after reporting better than expected food performance over Christmas but a significant drop in general merchandise sales.
Group like-for-like sales, including both the Sainsbury’s and Argos businesses, fell 4.5% in its third-quarter to 8 January against tough comparatives with last year’s bumper trading in the sector.
The group no longer breaks down like-for-likes by division but revealed that total grocery sales slipped 1.1% in the quarter. However, they were up 6.6% against the same pre-pandemic period in 2019.
Over the key six-week Christmas trading period to 8 January (excl. Boxing day when stores were closed), grocery sales at Sainsbury’s actually grew 0.8% on last year. The group highlighted that this was driven by moves to enhance its competitiveness, led by its Aldi Price Match and Price Lock campaigns, and improve its product range and service levels. Its Taste the Difference premium range was the chain’s fastest-growing product tier in the key Christmas weeks as people chose to treat themselves and trade up.
“I am really pleased with how we delivered for customers this Christmas. More people ate at home and our significant investment in value, innovation and service led to market share growth,” said Chief Executive Simon Roberts.
He suggested that Sainsbury’s had cut prices on key product lines by the most in the market during the period. “It’s clear that the market has some inflation in it. Actually, in the quarter what you’ll see on the 100 highest volume lines for each of the key grocery retailers we were the most deflationary in the market,” Roberts told reporters this morning, citing industry data.
He acknowledged that consumers were facing a cost of living squeeze this year, but stressed that Sainsbury’s was focused on providing the best value it could. Both Aldi and Lidl pledged this week to have the lowest prices this year as shoppers’ budgets come under pressure from energy bill-led inflation and higher taxes.
Meanwhile, the group’s general merchandise operations suffered a 16% sales decline in the third quarter and a 10.4% fall during the six week Christmas period. This was blamed on comparisons with an exceptionally strong performance last year at Argos and the impact of global supply chain disruption on product availability. Sales in some categories were additionally hit by a deliberate move by the retailer to run fewer promotions and focus on more profitable sales.
The Sainsbury’s group is now forecasting a full-year 2021/22 underlying profit before tax of “at least” £720m compared with its previous outlook of around £660m and more than double last year’s figure.
The upgrade was attributed to investment and higher operating cost inflation being offset by cost savings and stronger-than-expected grocery volumes, driven in part by increased in-home consumption.
Its Argos business also continued to benefit from stronger margins supported by cost savings, while profit expectations in its financial services business were said to be running ahead of analysts’ consensus with bad debts lower than expected and lending volumes starting to recover.
Commenting on the Christmas trading update, Richard Lim, CEO, Retail Economics said: “These are very encouraging figures, portraying a defiant consumer who prioritised Christmas get-togethers despite rising anxieties about the virus. Food sales held up well against the previous year (given the restrictions 2020) as more family gatherings took place and consumers indulged across premium lines.
“To ensure a Covid-free Christmas, many people limited their social interactions in the run-up the big day, boosting home-cooked meals to the detriment of the hospitality sector. This displacement of spending from bars, restaurants and pubs supported food sales over the period.
“The retailer was also much better placed to cope with the surge in online grocery sales having invested heavily to boost capacity and improve efficiency over the last couple of years. A wave of new online grocery shoppers helped almost double sales on 2019 levels.”
Meanwhile, Ross Hindle, an analyst at Third Bridge, said: “Despite many expecting the discounters to flourish in the face of food inflation pressures, our experts don’t expect Sainsbury’s to be easily caught out.”
He added: “December’s trading was particularly strong for UK supermarkets, with home working translating into home eating and fewer consumers dining out as Omicron swept the country.
“There is now plenty of evidence to suggest the UK’s grocery renaissance is here to stay. Sainsbury’s should be able to hold on to its gains thanks to its loyal customer base and innovation around product lines, however it would be remiss not to highlight the threat the discounters and rapid-delivery grocers pose, particularly to Sainsbury’s.”
NAM Implications:
- Given Sainsbury’s “were the most deflationary in the market”…
- …and pursued Aldi Price Match and Price Lock campaigns…
- …while cushioned by a projected profit increase of 9%…
- …it is probable that Sainsbury’s will hold to discounter pricing differentials…
- …even as other mults respond to anticipated inflationary pressures.
- All eyes on Aldi and Lidl pricing for Q1/22!
