Sainsbury’s stated today that it was in a “good position” for the key Christmas trading period despite supply chain disruption contributing to lower sales at its Argos operation.
Over the half-year period to 18 September, the group’s underlying pre-tax profit rose 23% to £371m, driven by higher grocery sales and its cost reduction programmes. Sainsbury’s also returned to a statutory profit of £541m after a £137m loss the year before caused by one-off costs relating to Argos store closures and other restructuring charges.
Group sales increased by 5.9% to £17.5bn, boosted by a strong rebound in fuel sales at its petrol stations. However, like-for-like sales, excluding fuel, rose only 0.3% in the half after falling 1.4% in the second quarter, having increased 1.6% in the first.
Whilst Sainsbury’s no longer breaks down like-for-like performance by division, it revealed that total grocery sales grew by 0.8% after making market share gains on the back of its ‘food first’ strategy that focuses on improved value to combat the discounters, product innovation, and better customer service. With the pandemic continuing to move eating occasions in-home, grocery sales are still up 9.1% on a two-year basis.
However, sales in its general merchandise operation fell 5.8% after tough lockdown comparisons. The Argos business dragged down performance with sales falling 7.3% during the half after a 12% slump in the second quarter amid “supply challenges” and unseasonal weather. It also revealed that there were expected to be limited supplies of consumer electronics at Argos ahead of Christmas.
Chief Executive Simon Roberts highlighted that the industry faces labour and supply chain challenges. “However, our scale, advanced cost-saving programme, logistics operations, and strong supplier relationships put us in a good position as we head into Christmas,” he said.
Roberts later added that while price pressures had been flat during the first six months of its financial year, he now expected them to build over the winter months – potentially threatening customers with higher bills.
Roberts also admitted that recruitment was “challenging” and it needed more lorry drivers.
Against further strong comparatives in the second half of the year, Sainsbury’s said it expects customer behaviour to normalise and grocery growth to “moderate” as shoppers return to offices and dining out at restaurants more often.
However, the group maintained its guidance for full-year profit of “at least” £660m, up from the £356m made in 2020/21.
Shares in Sainsbury’s are up 28% so far this year, buoyed by bid speculation following the takeover battle for Morrisons. Its shares fell 3% today in early trading.
John Moore, senior investment manager at Brewin Dolphin, said: “Sainsbury’s continues to show resilience, navigating the challenges of the pandemic, investing in its spread of services, and taking self-help measures to improve its position.
“Those initiatives are beginning to bear fruit in the form of increased sales, higher profits, better market share, and improving cash flow.
“These results will do little to dissuade potential buyers of the business – particularly as debt reduction targets are on track – and rumours of interest in the company are likely to persist following Morrisons’ takeover.”
Nick Everitt, Director of Advisory at Edge by Ascential, added: “Sainsbury’s is under a lot of pressure to compete with other major players in the UK grocery space, particularly amidst a backdrop of supply chain strains and inflation. Looking ahead, it must continue to focus on its online growth and digital transformation, and will need to upweight its investment in fulfilment if it wants to stand a chance at competing with its rivals.”
He continued: “Sainsbury’s is also up against the threat of Amazon, which is continuing to expand its footprint in UK grocery. We could soon see Amazon make a bid for an existing bricks & mortar supermarket chain and Sainsbury’s could be a target for acquisition. Sainsbury’s established foothold and expertise in the grocery sector, together with Amazon’s ambition and prowess in digital transformation, means this pairing could be a force to be reckoned with.”
NAM Implications:
- “However, our scale, advanced cost-saving programme, logistics operations, and strong supplier relationships put us in a good position as we head into Christmas,”
- As expected a mult, with sufficient scale to ensure priority in terms of its Sainsbury’s supply chain.
- i.e. suppliers will not prioritise smaller retailers at Sainsbury’s expense?
- Meanwhile, Sainsbury’s in recovery mode, increasing its appeal to potential purchasers.
- If this ends up as a PE play, it will require changes in suppliers’ handling the account…
- See The Implications of Private Equity Takeover of a Mult
