Sainsbury’s shares were buoyed this week by a higher than expected earnings projections as market share gains boosted sales in its H1 results.

The supermarket told investors on Thursday that it expected to hit the upper end of previous profit guidance for the full year and upgraded its retail free cashflow forecast as the strong grocery performance flowed through to its balance sheet.

Reporting its first-half results for the six months to 16 September, Sainsbury’s said its grocery sales increased by 10.1% as it continued to prioritise value and inflated prices behind key competitors.

The supermarket said this double-digit growth was driven by volume growth across both quarters, driving “record” market share gains and outperformance of the wider market.

The picture was less bullish for general merchandise sales, which increased by a more modest 1.1% as strong sales of consumer electronics and technology products were held back by lower seasonal sales amid a wetter and cooler summer. In particular, clothing sales fell back 8.4% due to the poor summer and mild early autumn.

Total statutory group sales for the period were up 3.5%, hampered by a 19.6% drop in fuel sales as prices fell. Like-for-like retail sales (excl fuel) rose 8.4% after 6.6% growth in Q2.

That growth translated into a 2% uptick in retail operating profit to £485m. Underlying profit before tax was flat at £340m, while statutory profit before tax of £275m was down 27%, due to non-cash charges in the period and one-off income from legal settlements in the prior year.

Sainsbury’s said it would continue to invest in its grocery offer and expected its volume performance to result in full-year underlying profit before tax of between £670m-£700m, which is in the upper half of previous guidance. Meanwhile, retail free cash flow is expected to be at least £600m, also higher than previous guidance.

Bernstein praised the “strong results”, while noting that the group’s 10bps drop in EBIT margin remains weak compared with Tesco’s strong margin expansion. It also suggested a strategy day on 7 February pointed to a “high likelihood” of a share buyback being announced.

Russ Mould, investment director at AJ Bell commented: “It’s been a while since Sainsbury’s has consistently done well, but the current management team seemed to have created a formula that works…The response by the current management team has been to offer good quality products at more affordable prices, which has helped pick up business from those seeking to trade down from the likes of Waitrose, while also luring in people on tighter budgets looking for a treat.”

Sainsbury’s shares were up 4.6% to 273.7p on Thursday morning and are now up more than 38% year on year and by 22% so far in 2023.

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