Sainsbury’s increases profit outlook as it puts food ‘at the heart’ of its business
The grocery chain and Argos owner said it held underlying pre-tax profits firm at £340m in the six months to September 16 in the face of rising costs and intense competition on prices across the sector.
On a statutory basis, pre-tax profits fell 27 per cent to £275m from £376m a year ago, when results were buoyed by income from a legal settlement.
The group reported a 6.6 per cent rise in like-for-like retail sales, excluding fuel, in its second quarter, down from growth of 9.8 per cent in the first three months, as its performance was hit by a difficult performance for its clothing range.
But it said full-year underlying pre-tax profits are now expected to be in the “upper half” of its guidance, at between £670m and £700m, as efforts to keep prices low boosted grocery sales.
It previously guided for annual profits of £640m to £700m, having delivered £690m in 2022-23.
Total grocery sales jumped 8.9 per cent in the second quarter and 10.1 per cent over the first half, according to the firm.
Chief executive Simon Roberts said: “Food is firmly back at the heart of Sainsbury’s.”
He added: “We know people are still finding things tough and we’re working harder than ever to reduce our costs, putting the money back into our customers’ pockets through lower prices on the products they buy most often.
“I’m pleased to say food inflation is coming down and we are passing savings on to customers.”
Looking ahead to the Christmas season, the group said “strong trading momentum has continued in recent weeks and we are confident heading into the peak trading period”.
The half-year figures showed that the strong grocery performance was partially offset by a tough market for general merchandise and clothing, with the latter plunging 14.6 per cent in the second quarter as a cooler summer and warm early autumn affected demand for seasonal clothing ranges.
General merchandise sales were 2.6 per cent lower in the second quarter, but this was pared back to a decline of 0.6 per cent when stripping out the hit from the closure of Argos in Ireland.
Richard Hunter, Head of Markets at interactive investor, commented: “Sainsbury’s relentless focus on value is reaping some rewards, which could position it well in the lead up to the key Christmas trading period.
“Keeping shopping prices low has had a positive impact on the group’s market share, but of course this comes at a cost to Sainsbury itself.
"Since March, for example, the company has invested £118m on price reductions.
"The ferocity of competition, particularly in the supermarket arena, is well established and shows little sign of abating, such that the group will need to keep a constant lid on prices in order to remain in the mix.
"The shares have performed strongly of late, having risen by 31 per cent over the last year, as compared to a gain of 2.8 per cent for the wider FTSE100. Over the last two years, however, the price is down by 11 per cent which gives some perspective to the ongoing challenges which the group faces.”