ii view: pandemic pushes Sainsbury’s sales

Digital sales have grown, but the new chief executive is cautious on the outlook. 

First-quarter trading update to 27 June

• Total retail sales up 8.5%, excluding fuel 
• Like-for-like sales up 8.2%, excluding fuel
• Overall grocery sales up 10.5%
• Digital sales more than doubled
• Convenience store sales down 5% - fuel sales down 56%
• Argos sales up 10.7%

Guidance:

• Remaining cautious for the sales trajectory through the remainder of the year

Chief executive Simon Roberts said:

"The last four months have been extraordinary in so many ways and our colleagues have done an amazing job adapting our business.

"Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks, SmartShop now accounts for more than half of sales in some supermarkets and Argos sales were strong while operating as an online-only business for almost twelve weeks. Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre Convenience stores were all significantly down year on year as a result of lockdown.

"The coming weeks and months will continue to be challenging for our customers and our colleagues and we do not expect the current strong sales growth to continue. A number of the decisions we have made have materially increased costs but meant that we have done the right thing for our customers and set us up well for the future.”

ii round-up:

Founded in 1869, Sainsbury's today has over 600 supermarkets, 800 convenience stores and more than 1,200 Argos locations in both stand-alone and supermarket locations. 

In July 2019, it opened the UK’s first no and low alcohol pub in London – The Clean Vic. The retailer also operates Sainsbury’s Bank.  

For a round-up of this first-quarter trading update, please click here. 

ii view:

Food retailing is a tough and highly competitive market. Discount retailers Aldi and Lidl continue to grow their UK store portfolios. Tesco (LSE:TSCO) is working hard on its recovery and Morrison's (LSE:MRW) is fostering a growing relationship with Amazon (NASDAQ:AMZN). At the high end, John Lewis is folding Waitrose management into its broader structure, while M&S (LSE:MKS) is now partnering Ocado (LSE:OCDO) to grow its online food sales. 

For Sainsbury's itself, and following its government rejected merger with Asda, cost saving programmes became the order of the day, although has subsequently been overtaken by Covid-19.  Now, the pandemic is arguably pushing forward many of the areas which Sainsbury's may have attempted to have done. Digital sales more than doubled in the quarter and use of its self-service SmartShop devices in store have risen significantly. 

For investors, cautious management comments regarding the outlook for sales should not be overlooked. Whether the growth in sales at Argos will continue now that other non-essential retailers are back open under reduced lockdown restrictions, only time will tell.  But the digital stress-testing provided by the pandemic for both Sainsbury's and Argos may well prove beneficial. A return to dividend payments could well be seen at its November first-half results, while the new chief executive will be hungry to make an impact. 

Positives: 

• Digital sales more than doubled in the quarter
• Targeting cost reduction of £500 million over five years

Negatives:

• Supermarket sales fell by 0.1% over its last financial year
• Dividend payment suspended for now

The average rating of stock market analysts:

Strong hold