Sainsbury's Delivers Strong First-Quarter Performance Amid Inflation Battle

Sainsbury’s (LSE: SBRY) reported a notable improvement in its first-quarter results, driven by increased grocery sales and a solid performance from its Argos arm.

In the 16-week period ending June 24, the company witnessed a robust annual growth rate, with total retail sales excluding fuel growing by 9.2%. Notably, like-for-like sales, excluding fuel, also climbed by an impressive 9.8% compared to the previous year.

While fuel sales experienced a decline of 21%, grocery sales rose by 11%. The general merchandise segment showed improvement as well, with a growth of 4.0%. The success of the Argos arm contributed significantly to this growth, posting a notable 5.1% increase. However, clothing sales experienced a slight setback, declining by 3.7%.

Sainsbury’s CEO, Simon Roberts, expressed the company’s commitment to battling inflation and ensuring customers receive the best prices possible. With household budgets under significant pressure, the retailer aims to alleviate the burden by passing on savings to its customers. Roberts noted that food inflation is starting to fall, indicating a positive trajectory for the future.

The first-quarter growth for Sainsbury’s was primarily driven by convenience stores and supermarkets, with customers steadily returning to physical stores—a stark contrast from the challenging times posed by the pandemic. The company highlighted that the surge in sales growth was mainly due to a resurgence in volume growth, particularly during bank holidays and warmer weather towards the end of the quarter.

Despite the strong performance, Sainsbury’s maintains its unchanged outlook for the future. The retailer expects underlying pretax profit for the year to range between £640 million and £700 million, compared to £690 million in the previous financial year (2023), and £730 million in the financial year prior (2022). Additionally, Sainsbury’s anticipates a decrease in annual retail free cash flow of approximately 22%, reaching at least £500 million, down from £645 million in the previous financial year (2023). In the financial year of 2022, retail free cash flow amounted to £503 million.

Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club, expressed satisfaction with Sainsbury’s solid trading update. Huggins highlighted the company’s return to volume growth and improved market share performance, attributing the positive outcome to the boost provided by bank holidays and favourable weather conditions. Sainsbury’s strategic efforts to lower prices, such as the well-received Nectar prices initiative, have helped the company maintain its position amidst intense competition from Tesco and German discounters.

However, Huggins cautioned that Sainsbury’s cannot declare victory just yet. The competitive landscape in the grocery sector continues to intensify, with Aldi, Lidl, and Amazon expanding their presence in the UK market. Moreover, cost pressures persist for both the company and its customers, indicating that profitability may remain stagnant this year. Nonetheless, Sainsbury’s remains resilient for now, holding its ground in the market.

In early trading on Tuesday morning in London, Sainsbury’s shares declined 1.5%, settling at 270.40 pence per share.