Sainsbury's lifts FY outlook despite fall in Xmas quarter sales

UK supermarket group Sainsbury's raised full-year profit forecasts despite a fall in underlying sales over Christmas.

The group on Wednesday said it now expected underlying profit before tax of at least £720m compared with previous guidance of at least £660m and £356m made in 2020-21.

Sainsbury's said group like-for-like sales, excluding fuel, fell 4.5% in its third quarter to January 8 year-on-year against a tough prior-year comparative when lockdowns were in force.

Grocery sales fell 1.1% year-on-year but were up 6.6% against the same period in 2019-20, before the pandemic struck and restrictions were imposed. In the six weeks to 8 January, excluding Boxing Day, when it chose to close this year, grocery sales rose 0.8% fears over the Omicron wave of Covid-19 led to more people eating at home.

Total sales over Christmas fell 2.4% over that period as the UK's second biggest supermarket chain struggled to supply technology, gaming kit and toys at its Argos chain.

“Our expectations for full year profits are ahead of previous guidance, with investment in the customer proposition and higher operating cost inflation offset by structural cost savings and stronger than expected grocery volumes, driven in part by increased in-home grocery consumption,” the company said in a trading update.

General merchandise sales fell 16% year-on-year, reflecting a strong performance last year when the UK went into full lockdown over Christmas, key product shortages and Sainsbury's strategy of focusing on profitable sales, including reduced promotional activity.

AJ Bell investment director Russ Mould said the mixed internal performance highlighted the company's ‘food first’ strategy.

“The company blames tough year-on-year comparatives for weaker non-food sales yet given that quite a few other retailers have reported a decent Christmas, one wonders if Sainsbury’s-owned Argos has made a few mistakes and more attention is needed to the brand," he said.

“Supply chain issues are one factor behind a double-digit decline in technology, gaming and toy products. Another factor is the decision to focus on profitable sales and cut back on promotions. That might protect profit margins but equally Argos has a reputation for having attractive prices so Sainsbury’s is taking a bit gamble with its new strategy as it could see the loss of customers to rival operators.

“If people now associate Argos as being less competitive on pricing, they might cease shopping with the brand full stop. Against these concerns, the core food business is doing well."