Sainsbury’s revealed today that it was on track to deliver full-year profit growth of around 7% after robust food sales over the Christmas period offset weakness in general merchandise.
Like-for-like sales across its Sainsbury’s and Argos stores rose 2.8% over the 16 weeks to 4 January.
Whilst the business no longer provides underlying sales figures by division, it revealed that total sales in Sainsbury’s were up 3.7% during the third quarter period, with grocery seeing growth of 4.1% and general merchandise & clothing suffering a 0.1% decline. Over the festive period (six weeks to 4 January), grocery sales were up 3.8% and general merchandise & clothing grew 3.4%.
Meanwhile, sales at Argos fell 1.4% across the quarter but were up 1.1% over Christmas, buoyed by Black Friday promotions.
As with other supermarket chains, Sainsbury’s benefitted from the trend of cash-strapped dining at home more, boosting sales of its premium ‘Taste the Difference’ range by 16% during the Christmas weeks. It also highlighted that its strategy of matching Aldi’s prices on hundreds of items and providing offers for members of its Nectar loyalty scheme, financed by cutting costs, was paying off and helping it win market share.
The group noted general merchandise sales were impacted by a space reallocation programme and focus on full-price seasonal sales, while Argos faced subdued customer spending and a highly promotional environment.
“We have won grocery market share for the fifth consecutive Christmas, with more customers choosing Sainsbury’s for their big shop,” said Chief Executive Simon Roberts.
“Driven by our leading combination of quality, value and service, we have achieved seven consecutive quarters of volume performance ahead of the market and further accelerated our two-year volume growth.”
Sainsbury’s now expects its full-year retail underlying operating profit to be in line with analysts’ consensus and the midpoint of its guidance range of £1.01-1.06bn, representing growth of around 7%.
“The strength in grocery is a sign of management’s turnaround continuing to work whilst we think Argos weakness is cyclical and should recover over the next 12 months,” said Bernstein analyst William Woods.
However, shares in the group were down over 3% in early trading, mirroring the City’s reaction to strong Christmas results from Tesco and Marks & Spencer yesterday that were overshadowed by concerns about the strength of the economy, tax rises, and weak consumer confidence.
After announcing a 5% pay rise for its workers today, Roberts stated that the impending increase in employers’ national insurance contributions will drive inflation, particularly on fresh food.
“It is coming at us fast in a way that was unexpected and will bring inflation as a result,” he said, revealing the NI hike will add £140m to Sainsbury’s wage bill from April.
While the retailer is sticking to plans to open more than 20 supermarkets as well as more convenience stores, Roberts said Sainsbury’s would have to be “very thoughtful about where we hire” as a result of the higher costs. He suggested that it would have been better if businesses had been given more warning about the tax changes, which could have been phased in more gradually.
The company is also splitting its pay rise for 118,000 hourly paid employees into two parts – increasing to a minimum of £12.45 an hour from March and then £12.60 in August in order to “navigate a challenging cost environment”.
Roberts stated that Sainsbury’s would do “everything we can” to head off price rises for its customers as part of its existing plans to cut £1bn of costs from the business with more efficient operations. He also joined the Tesco Chief Executive, Ken Murphy, in calling on the government to avoid loading retailers with additional costs from packaging regulations and reform of the business rates system.
NAM Implications:
- Sainsbury’s are in ‘good company’ in that they are pacing themselves against Tesco and M&S.
- All winning under similar market pressures.
- Morrisons and Asda are fighting a different battle.
- As are the discounters.
- That said, all retailers will be subject to the added Budget pressures…
- …and the ‘unknowns’ of additional costs from packaging regulations and reform of the business rates system.
