Sainsbury’s has good Christmas but says market remains challenging
The British grocer had a record trading week just before Christmas with over 29 million transactions
7 January 2015
British grocer Sainsbury’s posted a better than expected performance in the Christmas quarter with like-for-like sales over the key Christmas period but the retailers says the outlook for the rest of the year will remain challenging.
Sales at stores open at least a year fell 1.7% excluding fuel in the 14 weeks to 3 January. Total sales fell 0.4%.
However, the British grocer said that they had a record trading week just before Christmas with over 29 million transactions.
Sainsbury’s shares, which have fallen by 36% over the past year, rose 1.3% following today’s announcement.
The grocer’s chief executive Mike Coupe said he expected like-for-like sales in the fourth quarter to be similar to its first half performance due to “the uncertainty in the trading environment, food price deflation and price reductions”.
He said the sales figures also reflected the trend of more frequent and local shopping, with its convenience business growing 16% in the quarter.
Sainsbury’s has vowed to cut the prices of 1,000 of its most popular products as part of a £150m programme announced in November.
Rival Asda announced similar plans on Tuesday, saying it would invest £300m in the first quarter of 2015 on cutting prices.
According to David Gray, retail analyst at Planet Retail, Sainsbury’s suffering can only intensify as the effects of a new retail reality bear down hard on company performance. “Declining sales and profits have fast become the norm for an industry that for so long basked in profit growth year after year.
“Sainsbury’s numbers are underpinned by some of the toughest market conditions in a generation, with the era of rising industry food values coming to an end as food price inflation falls back. Combine this with the twin threats of falling food volumes and the seemingly unstoppable rise of the hard discounters and there really is nowhere to hide for Sainsbury’s new boss.
“These horrendous conditions make it nigh-on impossible for Sainsbury’s to grow profits, in the short term at least, without raiding its valuable property portfolio. Sainsbury’s also looks increasingly behind the curve in terms of realigning its floorspace requirements, with larger rival Tesco having moved much earlier to combat hypermarket space issues.
“It’s not all bad news, though. Sainsbury’s is still one of the UK’s most successful convenience retailers with more than 600 outlets, a figure forecast to surpass 1,000 by 2018. Sainsbury’s is also taking swift action to address this new retail reality by tying up with Danish discounter Netto and working tirelessly on measures to reinvent its large stores. We can only hope these deliver results soon or the company may be facing a protracted slowdown.”
Looking at Sainbury’s business in Northern Ireland, Ken Odeluga a market analyst at cityindex.co.uk says that it is challenging to come up with specific insights into this region as the results as tied in with the UK.
“Right up until January of last year, Sainsbury’s had just 13 stores in NI and the firm has stated that it is reluctant to open ‘Sainsbury’s Local’ stores in the region.
“Therefore, since Sainsbury’s same-store sales (stores open more than a year) have fallen 1.7% on average in the UK and most new stores opened have been ‘Locals’ (25, versus 4 ‘supermarkets’) it makes sense to estimate quarterly sales in the NI region have been very close to Sainsbury’s UK average.”