- Earnings in decline
- Intense focus on price and value
- Market share gains
The UK’s second largest supermarket Sainsbury’s (SBRY) reported a 5% fall in underlying pre-tax profit to £690 million for the year ending 4 March 2023, as it battles with rampant inflation.
The underlying pre-tax profit figure for the year ending 4 March 2023 was at the ‘top end’ of the £630 million to £690 million range. However, the share price barely moved as investors weighed up the decline in earnings with the company’s efforts to win more market share by keeping prices lower.
The shares already had a good run leading up to the results, helped by Bestway increasing its stake in the supermarket which has lead to takeover speculation.
According to the latest market data from Kantar grocery price inflation hit 17.5% over the four weeks to 19 March 2023. ‘Households are now facing an £837 increase in annual shopping bills if they don’t change their shopping behaviours,’ says Kantar.
Simon Roberts, Sainsbury’s CEO said: ‘We really get how tough life is for so many households right now which is why we are absolutely determined to battle inflation for our customers. Our focus on value has never been greater and we have spent over £560 million keeping our prices low over the last two years.’
Sainsbury’s fourth-quarter grocery sales were up 7.4% driven by inflation and the supermarket reported an improved market share.
It has proposed a final dividend of 9.2p and a full-year dividend of 13.1p in line with 2022.
Clive Black retail analyst at Shore Capital was positive about the latest set of results, commenting: ‘The past financial year was not easy for Sainsbury’s, or the rest of the grocery trade for that matter, with material inflation the prime cause of widespread financial pressure.
‘Hence, we are pleased the group reports underlying profit before tax at £690 million, down on the 2022 financial year’s pandemic normalisation boosted £730 million but well ahead of 2020’s £586 million.’
LOYALTY CARD WARS
Earlier in April, Sainsbury's announced it had started offering lower prices for members of the Nectar loyalty card scheme, escalating the battle between supermarkets to win customers during the cost-of-living crisis.
The lowering of prices for its customers is part of Sainsbury’s ongoing strategy, and its investment over the last two years is £10 million more than its commitment announced in December 2022.
Sainsbury’s said: ‘It has helped us significantly improve our price position against all our competitors by as much as 16%.’
Tesco (TSCO) already offers lower prices on many products for members of its Clubcard scheme in response to being under pressure from German discounters Aldi and Lidl.
Sainsbury’s said it had grown Nectar digital users to 11 million and now has over 18 million Nectar members for the year ending 4 March 2023.
It added: ‘Nectar360 (the Sainsbury’s-owned scheme manager) is on track with its plan to deliver at least £90 million incremental profit by March 2026.’
WHAT NEXT?
Sainsbury’s has raised its full-year guidance and expects underlying pre-tax profit between £640 million and £700 million for the current financial year ending March 2024.
It said: ‘We continue to expect to generate at least £500 million of retail free cash flow.'
As result of Sainsbury’s positive guidance, Shore Capital has upgraded its full year pre-tax profit forecast for 2024 by £15 million to £660 million.
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