Supermarket group Sainsbury (SBRY) reported a return to growth in its grocery and clothing lines in the second quarter, sending the shares to the top of the FTSE 100 leader board on Wednesday. The stock rose 1.5% to 216p in early trading.
Total sales, excluding fuel, in the 12 weeks to 21 September were up by a slim 0.1% but grocery sales were 0.6% ahead and clothing did better still, up a creditable 3.3%.
Clothing was boosted by clearance activity and strong online sales. As we revealed in our look at Britain’s favourite brands last month, Sainsbury’s Tu clothing brand has been scoring well with consumers.
Sales of general merchandise through Sainsbury and Argos stores were less rosy. It was down 2% last quarter due to reduced promotional activity and in particular the timing of new product releases in gaming and toys.
ALL ABOUT PRICE
In its core grocery business the continued focus on lowering prices and expanding the range of ‘value’ goods, particularly in meat and fish, has clearly gone down well with customers.
However, investing in prices has come at a cost with first half pre-tax profits expected to be reduced by £50m due to promotions and a tough comparison with last summer.
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Costs are expected to normalise in the second half meaning that full year underlying profit before tax should still be in line with market forecasts.
ABSENCE OF VOLUME GROWTH
According to Kantar, overall UK grocery sales in the 12 weeks to 8 September were up by 0.5% but the increase was entirely due to higher prices as volumes were flat.
Sainsbury’s focus on price cuts therefore puts it at odds with the rest of the sector but it is at least driving volume growth.
While the hot August Bank Holiday saw grocery sales rise compared with last year, generally the comparison with last year’s heatwave has made it a summer to forget for most retailers.
Also, talk of stock-piling ahead of the 31 October Brexit deadline ‘may be just that’, said Kantar. Households actually bought fewer items in their weekly shop in the 12 weeks to 8 September than they did in the same period a year ago.
