Sainsbury’s cautious over ‘uncertain’ outlook but sees sales boosted by Argos and meat-free food for ‘flexitarian’ diets
- Grocery sales at Sainsbury’s rose 1.2% in the first half with trading profits up
- Taking into account exceptional costs such as the Asda deal, profits fell by 40%
- Supermarket said the inclusion of Argos shops in its stores was aiding sales
- Group reiterated claim that planned Asda merger would lead to lower prices
Sainsbury’sclaims its balance sheet has been given a boost by the inclusion of Argos shops inside its stores.
The supermarket, which is vying to secure a mega-merger deal with rival Asda, said its half-year underlying profits rose 20 per cent to £302million.
But, when a host of exceptional costs are taken into account, Sainsbury’s profits nearly fell by 40 per cent, from £220million to £132million.
Profits: Sainsbury’s half-year underlying profits rose 20 per cent to £302million
The profit figure was weighed down by costs related to restructuring store management teams and preparing for the Asda deal, which is being scrutinised by competition authorities.
Profits at Sainsbury’s Bank fell 53 per cent to £116million, which was ‘in line with full year guidance’, the group said.
Looking ahead to the crucial Christmas sales period, the supermarket’s boss, Mike Coupe, remained cautious.
Sainsbury’s is battling against the growing influence of rivals like Aldi and Lidl, which are vying to steer customers away from
Coupe said: ‘The market remains very competitive and we are transforming our business to meet rapidly changing customer needs.’
The group added: ‘The consumer outlook is uncertain as we head into our key trading period.’
Sainsbury’s said its Taste the Difference range ‘performed well’ over the period, with sales rising nearly 3 per cent.
In a bid to cater to a broader range of consumers, the supermarket said it had also developed new ranges of plant-based meat alternatives to cater for ‘flexitarian diets.’
‘Meat-free products such as ‘Shroom Dogs’ and BBQ pulled jackfruit have performed particularly well, the supermarket said.
Popular: Sainsbury’s said its meat-free options, including ‘Shroomdogs’ were popular
Vying for a deal: Sainsbury’s is vying to secure a mega-merger deal with rival Asda
Grocery sales at Sainsbury’s rose 1.2 per cent in the first half thanks to the hot summer, while overall general merchandise sales grew by 1.5 per cent, although non-food profit margins remain under pressure.
Clothing sales fell 1 per cent, which the supermarket blamed on planned changes to promotions.
Like-for-like sales growth for the period , which strips out the impact of new retail space, was 0.6 per cent, which was below analyst predictions.
But, adding Argos stores in Sainsbury’s outlets was ‘driving an increase in trading intensity’, the retailer said.
Sales: Grocery sales at Sainsbury’s rose 1.2 per cent in the first half thanks to the hot summer
Commenting on its proposed deal with Asda, Sainsbury’s boss said: ‘Our proposed combination with Asda will create a dynamic new player in UK retail, with the ability to further lower prices and to reduce the cost of living for millions of UK households.’
Last month, Sainbury’s revealed it would be putting Oasis clothing concessions in its supermarkets in a bid to grab a bigger slice of the fashion market.
The grocer will put concessions in five of its stores alongside its own-label fashion range Tu, which already accounts for £1billion of annual sales.
The FTSE 100 listed company’s share price is up 1.52 per cent or 4.85p to 323.95p.
Ed Monk, associate director at Fidelity Personal Investing, said: ‘The market met the proposed Sainsbury’s Asda merger warmly earlier this year but that enthusiasm has cooled since the news that the deal is being examined by competition regulators.
‘What’s needed to renew the impetus now is better fundamental performance and today’s interim results showed a small pick-up in like-for-like sales of 0.6 per cent. That’s faster than at the update in July but a slowdown on the previous two quarters.
‘The under-par results from Morrison’s this week showed the challenge facing the large grocers.
‘Sainsbury’s tie-up with Argos – with the catalogue company embedded in Sainsbury’s stores – is further evidence that big supermarkets are looking to give shoppers further incentives to visit them rather than ordering the weekly shop online or buying from one of the discount rivals. The numbers today provide further evidence that the Argos deal is bearing fruit.’
Lee Wild, head of equity strategy at Interactive Investor, said: ‘Sainsbury’s shares are not far off a 16-month high and up over 40 per cent since March, thanks in large part to April’s Asda announcement.
‘Margins have suffered at the hands of the German discounters and, although the worst is over, business remains tough.
‘Tesco was punished last month for missing half-year expectations, and Morrisons suffered a similar fate this week following a third-quarter slowdown.’
In the third quarter, Morrison’s like-for-like retail sales increased by 1.3 per cent, down from the 2.5 per cent rise in the second quarter.
Fluctuations: The price of Sainsbury’s shares charted in the last 12 months