In the face of a cost-of-living crisis eating into shoppers’ disposable income, Sainsbury’s (SBRY) delivered solid sales in the first quarter to 24 June with a welcome return to volume growth and market share gains.

The UK’s second largest supermarket also maintained its year-to-March 2024 outlook, forecasting an underlying profit before tax of between £640 and £700 million with robust retail free cash flow generation of ‘at least £500 million’.

However, shares in the FTSE 100 retailer softened 1.5% to 271p as the absence of upgrades encouraged profit-taking, Sainsbury’s shares having rallied 25% year-to-date.

LIKE-FOR-LIKES UP NEARLY 10%

Like-for-like sales (excluding fuel) rose 9.8% in the 16 weeks to 24 June, with total retail sales excluding fuel up 9.2% year-on-year.

Sainsbury’s delivered a particularly strong grocery performance with sales up 11% including volume growth, as bank holidays and warmer weather towards the end of the quarter provided a boost.

General merchandise sales growth of 4% was supported by further market share gains for Argos in its 50th birthday year, with strong consumer electronics sales offsetting a weaker early summer performance from seasonal ranges.

FIGHTING ITS CORNER

Sainsbury’s has worked hard to cut prices in the face of intense competition from larger rival Tesco (TSCO) and rampaging German discounters Aldi and Lidl.

It is also benefitting from its deliberate push to use its Nectar loyalty scheme to offer keener prices to repeat customers, having cribbed the idea from Tesco.

There was also relief for cash-strapped shoppers as Sainsbury’s said that food inflation is starting to fall, which should help ease the pressure on consumers squeezed by rising prices, including those for the weekly shop.

SIMON SAYS

‘We are putting all of our energy and focus into battling inflation so that customers get the very best prices when they shop with us, particularly now as household budgets are under more pressure than ever,’ commented CEO Simon Roberts.

‘Food inflation is starting to fall and we are fully committed to passing on savings to our customers.’

Indeed, since March, Sainsbury’s has invested over £60 million in lowering prices, said Roberts, ‘leading on price cuts across more than 120 essentials like bread, butter, milk, pasta, chicken and toilet roll’.

Prices on Sainsbury’s top 100 selling products are now lower than they were in March, ‘against a market where prices have gone up. Customers have also saved over £90 million since we launched Nectar Prices in April’, he added.

THE EXPERT’S VIEW

AJ Bell investment director Russ Mould said that under Roberts, who took over the business a little more than three years ago, ‘there has been a renewed focus on its core food retail operation and this seems to be paying off. The market positioning of Sainsbury’s means it could be taking some business away from the more premium-priced Waitrose and Marks & Spencer (MKS), helping to compensate for any market share lost to the German discounters Aldi and Lidl.’

Mould continued: ‘There will be wider relief at Roberts’ indication that food price inflation is starting to ease. The company’s general merchandise arm – in essence the Argos retail brand – is more exposed to economic uncertainty than the grocery division. After all, people need to eat, they don’t need to buy products like toys and electrical goods.

‘Sainsbury’s is at least being proactive in this area, working on efficiencies in the background so it can attract customers with keener prices in the foreground.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Martin Gamble) own shares in AJ Bell.

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