Sainsbury’s stuck to its full-year forecast today and gave an upbeat assessment of its prospects for the festive season after robust grocery sales helped offset weakness in general merchandise during its first half.
The group’s total retail sales increased 3.1% to £16.30bn over the 28 weeks to 14 September, with like-for-like growth of 3.4%.
Sainsbury’s total grocery sales rose by 5.0%, boosted by its premium Taste the Difference range, which grew by 18%. It noted that its strategy of price-matching Aldi on hundreds of essential items and providing offers for members of its Nectar loyalty scheme was also paying off.
However, amid a difficult consumer environment, the supermarket’s general merchandise & clothing sales were down 1.5%, and sales at Argos slid 5.0%.
CEO Simon Roberts noted that the supermarket was outperforming the market across the whole basket, particularly in core fresh food categories, and was set for a “strong performance” at Christmas.
He added: “Our food business is going from strength to strength, and we’re making the biggest market share gains in the industry, with continued strong volume growth. More and more customers are coming to us for their big food shop, recognising our winning combination of value, quality and service.”
Despite continued cost pressures, Sainsbury’s still expects its full-year retail underlying operating profit, its preferred profit measure, to come in at between £1.01bn and £1.06bn, a growth of 5% to 10% versus the previous 12 months.
During the first half, underlying operating profits were up 3.7% to £503m, with strong growth at Sainsbury’s and Nectar partially offset by a lower contribution from Argos.
Meanwhile, Roberts noted that changes to national insurance (NI) made by the government in last week’s budget would add around £140m to its tax bill next year and could be inflationary.
“We’ll do everything we can to mitigate this, but given the margins of the industry – this is a 3% margin industry – there just isn’t the capacity to absorb this level of unexpected cost inflation that is coming at us as fast as it is,” he said this morning.
Roberts was also critical of the government for not doing enough in the budget to reduce retailers’ business rates burden and for tax changes impacting farmers.
Marks & Spencer said yesterday that it faces £120m of extra costs next year as a result of the budget. It noted that the hike in NI contributions amounts to a £60m headwind, while the 6.7% rise in the minimum wage will add another £60m to its costs.
CEO Stuart Machin said M&S had already planned for the wage increase and would try to absorb the extra costs by looking for savings elsewhere in the business rather than passing them on to consumers. He acknowledged that Chancellor Rachel Reeves had difficult choices to make but said he was disappointed that there was no immediate cut to business rates for retailers.
NAM Implications:
- Given the continuing political uncertainties affecting consumer purchasing behaviour…
- …particularly in bigger ticket items…
- …general merchandise continues to be a drag on Sainsbury’s overall performance.
- And Sainsbury’s will probably (and understandably) not absorb Budget-based cost increases.
- (Ditto other retailers…)
- Therefore, anticipate increases in shelf prices…
