5th Jul 2022 11:09
(Alliance News) - J Sainsbury PLC was understandably cautious on Tuesday, with the grocer mindful of inflationary pressures on consumers, though re-affirmed profit guidance and its Argos arm gathering some momentum were reasons to be cheerful.
Sainsbury's said grocery sales in the first quarter ended June 25 fell 2.4% yearly "against last year's elevated Covid-19 driven levels". On three years earlier, prior to the onset of the pandemic, grocery sales were 8.7% higher.
As well as post-Covid sales normalisation, consumers in the UK have come under recent pressure from an inflation-driven cost of living crisis.
Total retail sales, excluding fuel, were down 4.5% yearly. Including fuel, they were down 4.0%.
Sainsbury's shares were 1.0% higher at 210.50 pence each in London in late morning trade, giving back stronger gains earlier in the morning.
"A statement from rivals Tesco back in June flagged the dangers of customers trading down through brands, or even cutting back on the volume of their purchases. So the early bounce in Sainsbury shares may reflect relief that the first-quarter sales figures were no worse, as group sales fell 4% year-on-year on a like-for-like basis," AJ Bell analyst Russ Mould commented.
Sainsbury's kept bottom line guidance unchanged - expecting an annual underlying pretax profit between GBP630 million and GBP690 million - and it noted it has outperformed the market during "key events".
One of those was the Jubilee holiday. Sainsbury's got a boost from the sale of beer, wines and spirits. Sales of those were at the best level outside of Christmas and Easter. And unsurprisingly during a British holiday period, Pimms, sparkling wine and champagne sales were also strong.
Since then, however, there is a feeling that Sainsbury's - and wider British society - have come crashing back down to earth.
Sainsbury's warned the cost of living crisis will "intensify" for the rest of the year. It said it has invested GBP500 million to aid in attempts to keep prices as low as possible.
Hargreaves Lansdown analyst Matt Britzman commented: "Jubilee celebrations might have provided a temporary distraction for consumers who indulged in Pimms, Prosecco and strawberries, but we're very much back to reality now. It doesn't come as much of a surprise that management are warning of a consumer that's watching every penny as the cost-of-living crisis takes its toll, and the group's expecting that pain to only get. It's positive then to see guidance remain intact, though it's worth remembering it's been raised and lowered already this year.
"Sales from Argos continue to rebase lower than last year, though that's largely to be expected at this point. There was some positive commentary on the supply side, with easing conditions helping the group better service the demand that has remained."
On Argos, Sainsbury's noted sales trends have showed signs of improvement recently.
Argos sales were down 7% year-on-year during the final 11 weeks of the first quarter. They had fallen 19% in the first five weeks.
Grocery sales remain above pre-Covid levels but are down from numbers seen at the height of the pandemic.
A return to pre-Covid trends will not be too painful for Sainsbury's, Third Bridge analyst Alex Smith commented.
"With an extensive portfolio of convenience stores, Sainsbury's will be able to offset some of their hypermarket struggles as people gradually return to city centres," Smith said.
It could also fall into private equity cross-hairs, Smith added.
"Sainsbury remains an attractive takeover target. Our experts say that UK supermarkets have a high entry barrier and have been undervalued for a long time," the analyst explained.
By Eric Cunha; [email protected]
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