Business

Sainsbury’s drops as weak clothes sales offset food boom

Britain’s second-largest grocer saw food sales jump more than 9 per cent in the 16 weeks to Jan. 6

Sainsbury's shares fell 4 per cent in early trading in London. Photograph: Hollie Adams/Bloomberg

Katie Linsell
Wed Jan 10 2024 - 09:52

Sainsbury’s reported higher grocery sales over the Christmas period but kept its profit forecast unchanged as British shoppers cut back on other items like clothes.

Britain’s second-largest grocer saw food sales jump more than 9 per cent in the 16 weeks to Jan. 6. However, general merchandise sales through its Argos business fell slightly, with clothing also lower. Sainsbury kept its guidance for underlying pretax profit unchanged at a range of £670 million (€832 million) to £700 million. In November, it said it was targeting profit at the higher end of this range.

Shares fell 4 per cent in early trading. Jefferies analysts said they “wonder if today’s release prompts a travel-and-arrive pullback” after the share price rose by nearly 20 per cent in the final quarter of last year.

It’s the first festive shopping season since Sainsbury ramped up its loyalty program last year, helping it compete with discount grocers Aldi and Lidl. In the autumn Sainsbury said the Nectar Prices program, which reduces costs for shoppers with a loyalty card, was “an absolute game changer.”

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British supermarkets broadly fared well over the Christmas season with shoppers spending a record £13.7 billion, data provider Kantar said last week. Sainsbury was one of the stronger performers, growing its market share to a three-year high of 15.8 per cent, according to Kantar.

Sainsbury isn’t alone in seeing lower appetite for goods apart from food and drink. The British Retail Consortium and consultancy KPMG reported this week that sales of non-food items declined over the three months through December, with shoppers particularly avoiding big-ticket purchases such as furniture and homeware. Clothing, jewellery and technology were other gift categories that struggled as shoppers focused on affordable treats like beauty.

“Consumers proved more cautious in terms of discretionary spending after a November splurge, suggesting 2024 could be challenging,” said Bloomberg Intelligence analyst Charles Allen. He added that “another £200 million wage increase” would be likely to restrain Sainsbury’s margins.

Sainsbury outperformed the market with sales of its premium Taste the Difference range rising 13 per cent in the quarter. Shoppers prioritised spending on food and were encouraged by grocery price inflation easing in the UK. Food inflation fell to 6.7 per cent last month, down from a peak of above 17 per cent in March, according to Kantar figures.

Nectar Prices were also key, with customers saving an average £16 on an £80 Christmas shop. Sainsbury started passing on discounts to loyalty customers in April and now has 18 million members.

Britain’s antitrust watchdog will start investigating supermarket loyalty plans this month, having said they can confuse shoppers.

There are still cost headwinds for supermarkets, especially with business rates and the national living wage increasing from April. – Bloomberg

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