8th June 2016
Sainsbury’s has reported a fall in underlying sales, with the UK’s second-largest grocer warning the market remains challenging.
Like-for-like retail sales – excluding fuel – were down 0.8% in the 12 weeks to 4 June as food price deflation continued to affect the sector. In the previous quarter, sales had risen for the first time in two years.
Chief executive Mike Coupe said price pressures meant “the market will remain competitive” but he says he expects the supermarket to continue to outperform his peers.
Total retail sales rose 0.3% (excluding fuel) in the company’s first quarter, though like-for-like sales were down 0.8% (again excluding fuel).
Clothing sales rose nearly 5%, boosted by the supermarket’s football-inspired range, ahead of the European Championship which kicks off on Friday.
General merchandise sales also grew at over 5%, with vinyl records making a comeback in Sainsbury’s stores after 25 years from March. The supermarket is already the biggest vinyl retailer on the high street, with an 8% market share.
Sainsbury shares have risen 2.5% in early morning trading.
Laith Khalaf, senior analyst, Hargreaves Lansdown says: “Football can bring profits home for retailers, and Sainsbury’s is one of the companies benefiting from consumer activity ahead of the forthcoming European Championship.
“Make no mistake though, things are still tough on the high street. Food price deflation is still depressing grocery sales, and the discounters Aldi and Lidl are still nibbling at the big supermarket’s heels. Of late there have been some tentative signs that the worst might be over, with transaction volumes rising, but falling food prices continue to keep like-for-like sales in negative territory.
“Nothing will move the dial at Sainsbury more than the planned acquisition of Home Retail Group, the parent company of Argos. If the takeover proceeds, integration goes smoothly, and performance is improved, the deal will look a triumph. But like Sainsbury, Argos has its own problems, and the outcome of two challenged businesses joining forces still remains very uncertain.”
Graham Spooner, investment research analyst at The Share Centre, says: “This morning, supermarket Sainsbury’s posted a fall in sales, as same store sales fell 0.8% like-for-like. However, investors should appreciate that this was above analysts’ expectations of a 1.7% decline. The company cited the ongoing pricing war in the sector and continued deflationary pressure on food prices as reasons for the fall.
“The group reported like-for-like transaction growth across all channels and believes it is well-positioned to outperform its peer’s. The group’s CEO Mike Coupe stated that Sainsbury’s had made a solid start to the year even though market conditions remain challenging.
“We continue to recommend Sainsbury’s as a ‘buy’ for contrarian investors only, as the company leverages its range of shopping channels, diversifies its products and services and focuses on flexibility and convenience. This is where it could have advantages over the likes of Aldi and Lidl. Interested investors should appreciate that its balance sheet should put it in a stronger position over peers to defend its market share.”