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Sainsbury’s has posted another quarter of “strong grocery memomemtum”, but its overall sales growth has slowed as general merchandise sales and Argos fell back.

The UK’s second-largest supermarket said its grocery sales were up 4.8% in the 16 weeks to 22 June 2024, driven by volume growth.

It said volumes had remained “strong” as inflation has slowed, despite tough weather comparatives in recent weeks.

It also pointed to the biggest market share gains of any grocer during the quarter with consistent net switching gains as more customers choose Sainsbury’s for their main shop.

However, easing inflation meant food sales growth fell back to 4.8% from 7.3% in the previous quarter.

Additionally, Sainsbury’s own general merchandise and clothing sales fell back 4.3%, while Argos was down 6.2%.

The supermarket said this performance reflected improvement in clothing, offset by weaker seasonal general merchandise sales.

Argos sales declined against a particularly strong comparative period with significantly lower seasonal sales and weaker consumer electronics demand, notably in gaming.

The lower general merchandise sales saw overall headline retail sales growth fall back to 2.7% for the quarter (excluding fuel), from 4.8% in the previous quarter.

CEO Simon Roberts said: “We are pleased with our market-beating grocery performance and the early progress we’re making against our Next Level Sainsbury’s plan. We’ve been winning from competitors every month for 15 months, as more and more people are choosing Sainsbury’s for their big weekly shop.

“We are laser focused on delivering the best combination of value and quality in the market and our customers are recognising that with 98% of big baskets including Nectar Prices or Aldi Price Match. Innovation continues to be a top priority and we launched 400 new products this quarter, almost half of which were Taste the Difference, which continues to outperform a strong premium market. Our summer ranges are the perfect complement to this summer of sport and we’re gearing up for Wimbledon this week and England’s quarter final match on Saturday night.

“Our food business is going from strength to strength and I would like to thank all of my colleagues and our suppliers and farmers for the brilliant job they are doing every day to deliver for all our customers.”

Sainsbury’s continues to expect full-year retail underlying operating profit of between £1.01bn and £1.06bn, with growth of between 5%-10% against the prior year.

Sainsbury’s shares have fallen 4.3% on the news back to 246.9p.

Morning update

Shop price annual inflation eased to 0.2% in June, down from 0.6% in May, to reach its lowest level since October 2021, according to the monthly BRC-NielsenIQ shop price index.

Non-food remained in deflation of 1% in June, down from deflation of 0.8% in the preceding month.

Food inflation decelerated to 2.5% in June, down from 3.2% in May. This is below the three-month average rate of 3.0% and is the 14th consecutive deceleration in the food category.

Food inflation is now at its lowest level since December 2021.

Fresh food inflation slowed further in June, to 1.5%, down from 2.0% in May, while ambient food inflation decelerated to 3.9% in June, down from 4.8% in May.

BRC CEO Helen Dickinson said: “During the height of the cost of living crisis, retailers invested heavily in improving their operations and supply chains to compensate for the impact of global shocks on input costs. This is clearly paying off, with shop prices having risen just 0.2% over the past 12 months. Food inflation is now lower than any time since 2021 helped by falling prices for key products such as butter and coffee. Meanwhile, non-food prices went deeper into deflation as retailers tried to drive sales by discounting. This was particularly true for TVs with great deals to capitalise on the Euros fever.

“Whoever wins Thursday’s election will benefit from the work of retailers to cut their costs and prices, easing the cost of living for millions of households. The last few years should serve as a warning that where business costs rise significantly, consumer prices are forced up too. The next government must address some of the major cost burdens weighing down the retail industry, including the broken business rates system, and inflexible apprenticeship levy. By doing so, retailers can invest in lower prices for the future – helping to reduce the cost of living pressures that many families face.”

Mike Watkins, head of retailer and business insight, NielsenIQ, said: “Shop price inflation is still slowing and this will be of help to shoppers as they plan their household budgets for essential goods and services. And with uncertainty around discretionary spending, we expect the intense competition across the marketplace to keep price increases as low as possible this summer.”

Elsewhere, listed consumer products group Supreme has posted a jump in revenues and profits in its full financial year.

The group increased revenue in the year to 31 March by 42% to £221.2m.

Sales growth was driven by strong sales traction across its product range, with vaping products, both owned and branded, performing particularly well.

Elsewhere, sports nutrition & wellness, batteries and lighting categories all grew both their revenues and gross profits across the period.

This sales growth drove a 55% increase in gross profit to £63.5m, while adjusted EBITDA also increased by 96% to record levels of £38.1m.

Supreme said the current financial year would be “another profitable and highly cash-generative year for the group”, having made a positive start in Q1 and been trading comfortably in line with current market expectations.

Alongside an ongoing focus on accelerating organic growth, the company remains committed to exploring complementary acquisitional opportunities.

It has made seven acquisitions since 2021, including three vaping acquisitions last year.

It said it remains mindful of potential legislative changes to the UK vaping market, but is confident in future growth prospects, and remains “encouraged by both the positive impact of the new warehouse facility and the easing of raw material inflationary pressures”.

CEO Sandy Chadha commented: “Supreme has delivered an outstanding financial performance across the period, with strong revenue growth across all five of our divisions.

“Set against a challenging backdrop, we continue to be committed to providing high-quality, high-value products to both retailers and our customers.

“Looking at our vaping business, we are fully committed to doing what we can to support the eradication of underage vaping so that the industry can get back to its core objective: helping adult smokers find an affordable, sustainable, and safer alternative to smoking. I am not concerned that the government’s vaping proposals will have any long-term impact on Supreme as a responsible manufacturer and distributor with resources and experience to adapt to potential new market dynamics.

“Operationally and financially, we are in an excellent position to expand organically and, as we’ve successfully demonstrated in the past (and post-period end with the Clearly Drinks acquisition), we continue to evaluate complementary acquisitions.

“We’ve made a very positive start to the current financial year, and I look forward to updating all our stakeholders later this year on our continued progress.”

Finally this morning, wholesaler Kitwave Group has posted first half growth, but weaker profitability as weaker hospitality demand dampened its bottom line.

The group posted an 8% increase in overall revenues in the six months to 30 April to £297m.

Its ambient and frozen & chilled product businesses saw combined revenue increase by 5.0% to £204m, benefitting from the onboarding of new national contracts.

In its foodservice division the acquisitions of Wilds and Total Foodservice saw revenue increase by 15.1% to £93m.

However, operating profit decreased by 9% to £9.3m and the group’s adjusted operating profit decreased by 7.7% to £10.8m amid a slight reduction in margin.

Kitwave said this was reflective of the reduced turnover across hospitality customers within the foodservice division, which was driven by a reduction in footfall due to the persistent wet weather in the first four months of calendar year 2024.

CEO Ben Maxted commented: “The group has made positive progress towards its strategic targets during H1 2024 with a series of important investments that will benefit the group in the long term.

“As noted in the pre-close trading update, operating profit for H1 2024 is slightly behind the prior year due to investment and lower levels of demand in the group’s foodservice hospitality customer base. This, alongside the benefits of the increased investment in infrastructure and the inclusion of trade from Total Foodservice in H2 2024 will lead to the company’s annual financial performance having an increased second-half weighting.

“Despite the slight shortfall in operating profit in H1 2024 and the continued wet weather in May and early June, we expect to be in line with market expectations for the full year ending 31 October 2024.”

Yesterday in the City

The FTSE 100 opened July yesterday flat at 8,166.7pts.

Risers included Kerry Group, up 3.4% to €78.20, THG, up 3.2% to 64.2p, Greencore, up 2.2% to 170p, PZ Cussons, up 2% to 100.8p, Pets at Home, up 1.4% to 299.4p, PayPoint, up 1.1% to 643p and Sainsbury’s, up 1.1% to 257.8p.

The day’s fallers included Naked Wines, down 6.2% to 61p, Virgin Wines, down 3.4% to 43p, Wynnstay, down 2.6% to 372.5p, SSP Group, down 2% to 145.2p and C&C Group, down 1.3% to 156.8p.

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