UK consumer spend hits Sainsbury’s sales and profit

British supermarket group Sainsbury’s has reported slower quarterly sales growth and a drop in first-half profit, as weak consumer spending in the UK and intense competition took their toll.

Sainsbury’s and major UK rivals including market leader Tesco, Asda, and Morrisons are grappling with the rapid growth of discounters Aldi and Lidl.

They are also having to cope with more expensive food imports due to a weaker pound since the UK voted to leave the EU, while consumer spending is under pressure from rising inflation, subdued wage growth and economic uncertainty.

Earlier this week, Marks & Spencer said it faced “stronger headwinds” in food and was slowing openings of its upmarket convenience stores.

Shares in Sainsbury‘s, which acquired electricals and toys retailer Argos last year, were down 2.4% at one stage after it said growth in like-for-like sales, excluding fuel, slowed to 0.6% in its second quarter to September 23, from 2.3% in the previous quarter.

Shares in Tesco, Morrisons and M&S were also down. Analysts at Bernstein said Sainsbury’s second-quarter outcome was 1.3 percentage points below consensus expectations.

“The fall in like-for-like sales growth is coming from both grocery and general merchandise,” they said.

Sainsbury’s chief executive Mike Coupe said that the outcome partly reflected a programme to close around 100 Argos concessions in Homebase DIY stores and a “fairly soggy summer”.

“If you look at the more recent market data, we are at least holding our own, if not performing better than the overall market,” he told reporters.

“We’re pleased with the overall half (like-for-like sales up 1.6%) ... you have to look at it in the round,” he said.

However, he said that UK consumers were currently “very value conscious”.

Sainsbury’s first-half underlying pretax profit fell 9% to £251m (€284m) ahead of analysts’ average forecast of £241m but down from £277m in the same period last year.

The outcome reflected efforts to keep prices low despite rising inflation, higher staff wages and the inclusion of the seasonally lossmaking Argos business in the results, partly offset by synergies and cost savings.

Sainsbury’s forecast full-year profit in line with analysts’ average forecast of £572m, down from £581m in 2016-2017 — a fourth straight decline.

It said that it would have 165 Argos stores in its supermarkets by Christmas and was on track to deliver £160m of ‘synergy’ benefits from the acquisition six months ahead of schedule.

Sainsbury’s, which last month said that it was seeking to cut up to 2,000 jobs, has exceeded its cost- savings target and will achieve £540m over three years.

Reuters


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