- Argos and clothing sales contract
- Full-year guidance maintained
Christmas trading was a mixed bag for J Sainsbury (SBRY), as indicated by the 5 per cent fall in the share price as investors digested an update in which lower non-food sales took the shine off strong grocery trading at Britain’s second-biggest supermarket.
For the six weeks to 6 January, general merchandise (which includes Argos) and clothing sales fell by 3.7 per cent and 6 per cent respectively compared with last year. The company blamed this on strong comparatives, which were helped by consumers heading to Argos to buy physical gifts because of a Royal Mail strike.
On the grocery front, sales rose 8.6 per cent, “with stronger volume growth offsetting lower inflation” according to management. There was evidence of shoppers trading down from restaurants and up from cheaper grocery options, with year-on-year Taste the Difference range sales rising 13 per cent in the third quarter (the 16 weeks to 6 January).
Total retail sales (excluding fuel) were up 6.5 per cent in the quarter, compared with a 4.9 per cent uplift in the festive period.
The update came against a backdrop of grocery market share progress against rivals. According to researcher Kantar, Sainsbury’s market share of 15.8 per cent in the 12 weeks to 24 December was its highest share since December 2020.
Growth rates at German discounters Aldi and Lidl continue to outstrip those at their listed counterparts, but Sainsbury’s has made progress with its counter-offensive through greater investment to keep prices down and its new Nectar Prices scheme.
Full-year guidance was maintained, with the board still expecting an underlying profit before tax of £670mn-£700mn and retail free cash flow of at least £600mn. The mark down in the shares on update day must be seen in the context of heightened expectations, after management increased guidance in November.
Last IC view: Hold, 272p, 03 Nov 2023
