- Grocery sales in line
- Argos sales disappoint
- No change to forecasts
The UK’s second-largest supermarket chain Sainsbury’s (SBRY) delivered a first-quarter trading statement which was pretty much in line with expectations in terms of grocery sales and maintained its full-year profit and cash-flow forecasts.
However, a slowdown in total like-for-like sales growth and the resulting lack of an upgrade saw the shares drop 10p or 4% to a three-month low of 247p.
WEAKNESS IN GENERAL MERCHANDISE
For the 16 weeks to 22 June, Sainsbury’s posted ‘strong sustained grocery momentum’ with sales up 4.8%, in line with the till-roll data for the period provided by consultants Kantar.
Volume growth remained strong as food-price inflation eased, with the firm claiming it had the biggest market share gains of any grocer during the quarter as more customers chose it for their main shop.
However, sales of clothing and general merchandise were more mixed with a positive result in clothing more than offset by weak sales at Argos, where revenue was down 6.2% excluding the impact of store closures in the Republic of Ireland (including closures the drop was 7.7%).
As a result, total like-for-like sales excluding fuel were up just 3% compared with 4.8% in the previous quarter and 9.8% in the same period last year when high prices drove up the value of the goods it sold.
Chief executive Simon Roberts declared himself ‘pleased with our market-beating grocery performance and the early progress against our Next Level plan’.
‘We are laser focused on delivering the best combination of value and quality in the market and our customers are recognising that with 98% of big baskets including Nectar Prices or Aldi Price Match’, added Roberts.
EXPERT VIEWS
Tying in the June data from the British Retail Consortium, which showed shop prices rising just 0.2% last month, UBS chief economist Paul Donovan questioned whether profit-led inflation was over for retailers.
‘Profit-led inflation occurs when retailers use a dominant narrative to disguise profit increases when raising prices. However, at some point, price increases become the dominant narrative and consumer rebellion defeats margin expansion.
‘The collapse in inflation in the US, the UK and Europe has been miraculous, but cost of living remains a politically toxic subject. Consumers focus on price levels, especially for high-frequency purchases, and the ending of margin expansion may slow inflation without lowering prices to levels consumers believe to be “fair”.’
Jefferies analyst Frederick Wild was more upbeat about Sainsbury’s despite the lack of upgrades to the outlook.
‘An exceptionally strong grocery performance in Q1 was diluted by a more downbeat delivery in the general merchandise businesses, particularly Argos. This should represent the trough, which feels well understood by the market given the shares' recent underperformance.
‘Sunnier weather in recent weeks should underpin sequential acceleration, with the chief drivers through the rest of the year an improving consumer environment and an easing comparison.’
