Sainsbury’s has reported a decline in first-half profits amid the tough trading conditions, although the business stressed it was making volume market share gains and was well placed for Christmas.
Over the 28 weeks to 17 September, the group’s underlying pre-tax profit slipped 8% to £340m. This came after retail operating profit fell 9%, which Sainsbury’s blamed on its “investment in value”, reduced grocery and general merchandise volumes post-pandemic, and higher operating costs, partially offset by a bigger contribution from higher petrol prices.
Group turnover was up 4.4% to £16.41bn after the business benefitted from a 39.5% jump in fuel sales. Like-for-like sales (excl. fuel) covering both its Sainsbury’s and Argos businesses edged down 0.8%, after a decline of 4.0% in the first quarter was mostly offset by a 3.7% rise in the second.
Total sales in its grocery division were up 0.2% after growth of 3.8% in the second quarter as Covid lockdown comparatives eased, market price inflation accelerated, and business was boosted by the warm summer weather.
However, general merchandise sales across both Argos and its supermarkets were down 6.1% due to tough comparatives, supply chain disruption, and subdued consumer spending earlier in the year. However, the division delivered growth of 1.2% in the second quarter, driven by improved availability, favourable summer weather, and market share gains.
The group’s Chief Executive, Simon Roberts, noted that consumers were spreading out their Christmas spending to try to cope with the rising cost of living. He said they were also buying more own-label products and choosing to treat themselves at home with its premium food ranges rather than eat out.
The group stressed that it was “consistently inflating behind the market”, driven by its £500m investment in keeping prices down over two years. “Our mix and basket size trends are proving more resilient than competitors, and we are seeing less switching to Aldi and Lidl than all other full-choice supermarkets, reflecting the strength of our brand and customer base,” Sainsbury’s said.
The group stated that trading had been strong in the first few weeks of its second half, which started in mid-September, and it had made market share gains on a volume basis due to the investment it had made in its offering.
Richard Hunter, head of markets at interactive investor, called the grocer’s statement promising: “After a weak first quarter, Sainsbury’s has seen something of a resurgence in the second.”
The group still expects its full-year underlying pre-tax profit to come in between £630m and £690m, down from the £730m in 2021/22.
Last month, Tesco warned that its full-year profit was set to come in at the lower end of its previous guidance due to cost inflation and the squeeze on consumers’ spending power.
However, analysts still see Sainsbury’s as more challenged than other supermarket groups because it owns the Argos general merchandise business – an area more exposed to a consumer spending downturn as the UK heads into recession.
The company’s shares, which have fallen over 25% this year, rose more than 5% in early trading after the market reacted positively to the results and confirmation of its profit forecast.
NAM Implications:
- Sainsbury’s obviously showing growth via their own-label…
- …at the expense of hospitality.
- With general merchandise/Argos suffering the fate of specialist retailers in recession.
- Key for suppliers to check their Sainsbury’s business to ensure fair share of sales and investment.
