Sainsbury's (SBRY) reported a 1.6 per cent fall in like-for-like sales across its retail areas in the 16 weeks to the end of June 2019. The group has been struggling to inspire confidence in its strategy since the collapse of its proposed merger with rival Asda earlier this year, and has seen its share price fall below 200p for the first time since 1988.
Total retail sales were down 1.2 per cent, excluding fuel, with grocery down 0.5 per cent, general merchandise down 3.1 per cent and clothing sales down 4.5 per cent. Management said its food performance had improved relative to peers, while a tough market and bad weather hurt demand in general merchandise and clothing. The tough times look set to last, too.
The group said markets remain highly competitive and that the consumer outlook was uncertain. Recent data from research group Kantar Worldpanel supports this view. It said that, while supermarket sales grew 1.4 per cent in the 12 weeks to 16 June 2019, the mid-market players struggled, with flat sales for Tesco (TSCO) and a drop for Sainsbury and Asda.
Following the Competition and Markets Authority’s decision to block the proposed merger, Sainsbury's has resorted to a slightly updated version of the strategy it first unveiled in 2014, adding commitments to deleverage and invest in revamping its digital capabilities and physical stores.
However, broker Shore Capital raised concerns that the current level of profitability may be unsustainable. Analyst Dr Clive Black said: “They need to refocus. [However,] we’re not confident that that refocus can offer an improved shopper proposition at the current level of profitability”.
He added that Sainsbury’s has benefited from the fact it is favoured by more affluent shoppers, typically in the south of England, who are less price-sensitive and tend to be stickier. “They are losing those customers, but they’re losing them at a trickle rather than a flood,” he said.
Maintaining market share requires capital expenditure (capex), but since the 2015 financial year Sainsbury’s core retail capex has fallen from £947m annually to £454m, according to the group’s own measures.
