- Half year pre-tax profit up 4.7%
- Tasty grocery performance
- Argos sales disappoint
First half sales and profits rose at Sainsbury’s (SBRY) as the UK’s second biggest supermarket continued to secure market share gains in groceries, making up for a soft first quarter at Argos and in general merchandise.
CEO Simon Roberts insisted Sainsbury’s core food business is ‘making the biggest market share gains in the industry’, with more and more customers ‘coming to us for their big food shop’.
Yet shares in the FTSE 100 supermarket slid 3.1% lower to 260p as retail margins came in softer than expected due to heavy promotions and discounting at Argos, where sales were below management’s expectations.
FOOD TO THE FORE
Underlying pre-tax profit ticked up 4.7% to £356 million in the half ended 14 September 2024, slightly ahead of analysts’ estimates, as Sainsbury’s like-for-like retail sales (excluding fuel) advanced 3.4%, with grocery sales up 5% and general merchandise and clothing sales down 1.5%.
This sustained good grocery performance compensated for a lower contribution from Argos during a period of stock clearance and markdowns for the non-food brand.
Shore Capital’s Clive Black nudged up his full year pre-tax profit forecast by £9 million to £740 million following the results and observed that Sainsbury’s grocery business is ‘going like a train’.
Black said he was ‘encouraged to see signs of improvement in non-food, which may allow an excellent food performance to further shine’.
SHOPPERS TASTE THE DIFFERENCE
Highlights from Sainsbury’s results included the performance of its premium ‘Taste the Difference’ range, which resonated well with shoppers and delivered 18% sales growth in the second quarter, as well as increased sales in the convenience and online segments, both of which are crucial in a market increasingly driven by consumer convenience.
Sainsbury’s held the half-time dividend at 3.9p and is pressing on with its £200 million share buyback, while the recent acquisitions of store locations from Homebase and the Co-op are part of a strategic expansion aimed at strengthening the retailer’s presence outside of London and the South East.
EXPERT VIEWS
Edison’s Neil Shah commented: ‘While the first quarter was challenging for Argos, with sales down 7.7%, improvements in the second quarter signal a path to stronger performance in the months ahead. With new store acquisitions and continued investment in online and convenience offerings, Sainsbury’s is well-positioned for sustained growth and profitability, especially as it prepares for the peak holiday season.’
Quilter Cheviot analyst Lucy Rumbold remarked that Sainsbury’s showed a small improvement in its operating margin to 3%, ‘though this still trails Marks & Spencer (MKS), which commands a stronger 5% margin. Sainsbury’s management has been making solid decisions, but they still face challenges in catching up with competitors who operate with a more robust market position.’
Rumbold pointed out that Sainsbury’s remains ‘strategically disadvantaged due to its scale. As only half the size of Tesco (TSCO), it lacks the market share and operating leverage of the largest players. Ultimately, for investors, supermarkets with higher market shares and margins, like Tesco, may still offer a more compelling case due to their inherent advantages in scale and profitability. Sainsbury’s is making progress, but it’s a tough battle to close the gap.’
