Sainsbury’s ‘Food First’ strategy saw it crowned Grocer of the Year at the Gold Awards 2024 this week but while there was “strong grocery momentum”, its shares were hit by slowing growth as inflation eases, and a sharp slowdown in non-food sales and Argos in particular.
The UK’s second-largest supermarket said grocery sales were up 4.8% in the 16 weeks to 22 June 2024, driven by volume growth and “the biggest market share gains of any grocer” in the quarter.
Volumes remained “strong” despite tough weather comparatives in recent weeks, as it saw net switching gains from other grocers, with its food business “going from strength to strength”, according to CEO Simon Roberts.
However, easing inflation meant food sales growth fell back to 4.8% from 7.3% in the previous quarter. Additionally, Sainsbury’s general merchandise and clothing sales fell by 4.3%, while sales under the Argos brand were down 6.2%.
The supermarket said this performance reflected weaker seasonal general merchandise sales, though it did see an improvement in clothing. It blamed “a particularly strong comparative period” for the Argos sales slump, with significantly lower seasonal sales and weaker consumer electronics demand, notably in gaming.
Expectations for the full year were unchanged, with growth expected to be between 5%-10% and underlying operating profit topping £1bn.
However, the shares were hit in early trading on Tuesday, dropping as much as 5% before settling to close down 2.9% at 250.4p.
AJ Bell’s Russ Mould commented: “Sainsbury’s has the same nagging feeling as the England football team – it eventually scores a goal but you know it could do a lot better… It’s clear that a lot more work is needed to reshape the proposition, otherwise one has to question if the non-food operations are worth bothering with at all.”
While Bernstein acknowledged tough non-food comparatives, it noted investor concern that “the promotional environment and late start of summer will put pressure on margins due to lower full-price and seasonal sales”.
Global Data concurred: “While an unseasonably cold start to the summer would have been detrimental, not all the blame can be placed on the weather… Sainsbury’s has acknowledged that customers are more cautious when shopping for general merchandise categories, and promotional events and sales have found resonance. However, it must tread carefully to avoid eroding profit margins.”
Sainsbury’s shares edged back up to 254.6p by Thursday, but the shares remain down by around 15% so far in 2024 on concerns about its ability to turn around non-food sales momentum.
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