Sainsbury’s has become the latest retailer to post strong Christmas sales figures, boosted partly by soaring inflation. As a result, the UK’s second-largest supermarket is now forecasting that its full-year profit will come in towards the upper end of its guided range.
Over the six weeks up to 7 January, the group’s total grocery sales climbed 7.1%, accelerating from a 5.6% increase across the full third quarter period. Whilst much of this rise was down to higher prices, Sainsbury’s stated that volumes had been “relatively resilient” despite the squeeze on consumer’s finances.
There was a marked improvement in its general merchandise business, which includes Argos and non-food sales in its supermarkets. Sales rose 4.6% in the quarter and grew 7.4% during Christmas.
Like-for-like sales across both its grocery and general merchandise operations rose 5.9% over the 16-week third quarter. The retailer noted that early Christmas shopping lifted sales across the period as people looked to spread the cost of the festive season.
“Investment in value, innovation, service and product availability delivered stronger volume trends across grocery and general merchandise, particularly at Christmas,” said Chief Executive Simon Roberts.
As a result of the robust figures, Sainsbury’s now expects its full-year profit to be at the top end of its forecast £630m-£690m range, despite the recent announcement of another pay rise for hourly paid staff. It made £730m last year.
However, Roberts warned that money would be “exceptionally tight” this year for consumers, particularly as many people waited for Christmas bills to land. He pledged to work with suppliers to keep prices down to “battle cost inflation”, kicking off 2023 with its “biggest value campaign” for January that includes price matching Aldi on around 300 everyday products.
Sainsbury’s is spending £550m over the two years to March 2023, partly funded by cost savings, to keep a lid on grocery prices and encourage shoppers not to switch to the discounters.
Roberts stressed that the retailer had witnessed inflation “well below” the 14.4% figure recorded across the grocery sector by Kantar last month. And Sainsbury’s CFO suggested that spiralling prices were set to come down this year as the cost of commodities and transport eased.
“There is some good news coming through on the inflation front,” said Kevin O’Byrne.
Despite the robust figures, Sainsbury’s share price fell nearly 3% in early trading.
Neil Wilson, chief markets analyst at markets.com, commented: “With food inflation running at 13% at the moment, I am not seeing a heck of a lot to cheer here…fag packet arithmetic suggests there is not a lot of volume growth (contraction?) here, but we need to see more detail.
“Perhaps that is why shares are off 3% or so this morning. Profits are expected to be at the upper end of the guidance range of £630m to £690m, but remains cautious on the consumer outlook.
“Not a single mention of the word ‘margin’ in the release is suspect”.
Tesco releases its Christmas update tomorrow.
NAM Implications:
- A reasonable result…
- But relative lack of volume growth affects realists’ perceptions.
- And thereby impacts the share price.
- Best for suppliers to compare their Sainsbury’s business item/category by category with these stats.
- But the abiding worry has to be consumer-behaviour…
- …in cash-strapped, uncertain 2023.
