Grocer’s delight at profit outlook
SAINSBURY’S shares rose strongly yesterday after it said annual profits would be better than expected.
The profits upgrade is a rare piece of good news in the embattled grocery sector.
Traditional supermarkets face fierce competition from discounters such as Aldi and Lidl, forcing them to slash prices.
They are also coping with a shift in shopping habits in favour of buying online and through smaller convenience stores.
But Sainsbury’s remains the strongest performer among the Big Four grocers with a strong stable of its own brands and an expanding chain of convenience stores.
A series of cost-saving initiatives and improved confidence among shoppers helped it to lift annual profit targets. The shares rose 31.7p to 261p, or nearly 14pc.
The supermarket chain reported its seventh quarterly decline in a row in sales, but the 1.1pc drop was less than analysts had feared.
It was also a significant improvement on the 2.1pc plunge in the previous quarter.
Sainsbury’s, Britain’s third biggest grocer behind Tesco and Asda, also saw sales at its larger supermarkets bounce back.
That flies in the face of predictions by rivals that there is no future in big stores.
Chief executive Mike Coupe said he expects full year profits to be ‘moderately’ ahead of City forecasts if current trends continue. He added that customers are feeling more confident about their finances and are spending more, including on luxury products.
He said earnings had been boosted by doing ‘ lots of little things’ to pare costs, including measures to cut waste and distribute goods more efficiently.
The company has also improved the packaging and ingredients of its own brand ranges, including the premium Taste the Difference label.
‘Our programme to enhance the quality of over 3,000 own-brand products is on track,’ Coupe said. ‘Taste the Difference volume grew by over 4pc in the quarter.’
During the quarter the firm opened 27 convenience stores. Online grocery orders grew at more than 15pc and click and collect sites increased to 52.
It also launched its Tu clothing website nationwide and said the first six weeks of trading exceeded its expectations. Clothing grew by almost 13pc, boosted by a Back to School campaign with the retailer selling more than 640,000 pairs of boys’ trousers.
Coupe said the group had staged a ceasefire in the price war. He said larger store sales had stabilised and that the major growth areas are online and convenience shops.
He welcomed competition from Aldi, which is launching an online offering. Amazon is widely expected to follow suit.
Clive Black, an analyst at Shore Capital, said: ‘The upgrade comes despite what Sainsbury describes as a “challenging” market characterised by ongoing deflation.
‘We remain nervous about the broader environment. We have been particularly concerned about capability to withstand a more effective market leader in Tesco.’