Shares hit as grocer misses target on sales

SHARES in Sainsbury’s fell over five per cent last night after the supermarket chain missed sales forecasts and said it could see no sign of life getting easier for cash- strapped consumers.

The group, the UK’s third biggest grocer behind Tesco and Asda, said like-for-like sale excluding fuel rose just one per cent in the 10 weeks to March 19, down from 3.6 per cent growth in the previous quarter and below expectations of a two to three per cent increase.

Analysts said that once the boost from higher VAT, food price inflation and store extensions are taken out, underlying like-for-like sales were in negative territory.

Hide Ad
Hide Ad

Sainsbury’s chief executive Justin King said: “We see the environment continuing to remain tough. There is no sign that the pressures on consumers will ease.

“Clearly, we’d expected to grow faster in this quarter than we have, but we have grown faster than the market.”

The group is attracting 21 million customers a week, up one million on last year.

While January saw the expected return to budgetary shopping after the Christmas festivities, the usual pick-up in February failed to materialise.

Hide Ad
Hide Ad

Mr King said he expects this trend to have continued in March.

“It’s savvy shopping and we see more of it,” said Mr King.

He said that fuel price increases have had a huge impact on consumer finances with fuel prices rising 16 per cent during the quarter driven by world events. This has cost an average customer an extra £10 a week and Mr King expects prices to remain high.

The other big factor weighing on consumer spending is the imminent impact of tax rises and spending cuts.

Sainsbury’s has seen a change in shopper trends with people buying less in the weekly shop and topping up during the week.

Hide Ad
Hide Ad

“Our convenience stores have done particularly well in the quarter and it might be a trend that’s here to stay,” said Mr King.

“Customers are wasting a bit less, which is a good thing for them. It’s good for us, it plays to our strengths of fresh food and cooking from scratch.”

Shore Capital analyst Clive Black said: “Sainsbury’s has done more to confirm the magnitude of the deceleration in consumer activity in the UK than any other recent update.

“Expect our red pen to be coming out elsewhere too and not just for the food retailers.”

Hide Ad
Hide Ad

Retail analysts at Evolution Securities warned the figures showed “the impact of a perfect storm on the sector”.

They said: “With the consumer facing falling disposable income, sales are being spread more thinly. The UK has never seen sustained negative like-for-like sales across the industry before, but economics and mathematics suggests that his will be the new norm for the foreseeable future.”

The group’s shares fell 5.4 per cent last night, a fall of 19p to 335.3p.

Sainsbury’s has outperformed its rivals for several quarters, helped by expansion in online, convenience stores and non-food ranges such as clothing.

Hide Ad
Hide Ad

Non food sales, which account for 15 per cent of total sales, grew at over three times the rate of food. Earlier this year, Sainsbury’s signed up TV fashion presenter Gok Wan to create a number of womenswear collections.

Mr King said he is comfortable with analysts’ average 2010-11 profit forecast of about £660m.

Analyst Nick Bubb at Arden Partners said the sales news was disappointing, especially with the boost from recent store expansion taken into account.

“It should just about deliver full-year pre-tax profits in line with expectations, but bottom line growth of seven per cent to eight per cent remains lacklustre given cost growth burdens and there may be small scope for downgrades for the current financial year,” he said.

Hide Ad
Hide Ad

Mr King declined to comment on a report that 26 per cent shareholder Qatar Holding is keen for Sainsbury’s to pursue a merger with Marks & Spencer.

Qatar Holding, which built up its stake during a failed bid attempt in 2007, also declined to com- ment.

Sources played down the significance of the report.

The recipe for growth

Sainsbury’s has handed out meal planner tip cards to over three million customers. One popular promotion was how to cook five healthy family meals for £20.

During the quarter it launched its seventh Active Kids programme and customers and colleagues raised a record-breaking £10m for Comic Relief.

Hide Ad
Hide Ad

Sainsbury’s loyalty scheme Nectar signed up British Gas in January and easyJet joined last week. Nectar has over 17.5 million collectors, with over 800,000 signing up over the past year.

Sainsbury’s opened three new supermarkets, one extension and 21 convenience stores during the quarter.

Related topics: