Sainsbury’s share price rises after Q1 sales top expectations

Sainsbury’s beats expectations in Q1

Sainsbury’s saw like-for-like sales fall by 4.5% in the first quarter, which impressed compared to the 7.4% decline pencilled-in by analysts. This was driven by a better-than-anticipated performance from its core grocery operation. Importantly, while the pandemic-induced boom in grocery demand seen the year before is unwinding, like-for-likes are still some 8.7% above pre-Covid levels. Notably, online grocery sales continued to normalise after exploding during lockdown, but the shift looks permanent considering they remained 94% above pre-pandemic levels in the period.

The slide in general merchandise sales was also not as bad as feared, with Argos continuing to outperform sales in the supermarket. The company continues to upgrade its stores, including closing down standalone Argos stores and replacing them with new ones fitted inside Sainsbury’s supermarkets in an effort to cut costs and improve efficiency.

Meanwhile, clothing was the disappointment after a steeper drop in sales than expected in the first quarter. Still, they remained some 3.9% above pre-pandemic levels in the period.

However, Sainsbury’s has said both its non-food divisions have seen sales improve in recent weeks as tougher comparatives start to fall away. Clothing sales were down just 2% in the last 11 weeks, while general merchandise was down by 5%.

Below is an outline of like-for-like sales growth in the first quarter compared to what analysts expected:

Sainsbury’s: Pressure on household budgets will intensify

Price has been the main weapon of choice for most supermarkets ever since German discounters Aldi and Lidl disrupted the market, but this will intensify this year as customers become more cost-conscious. 

CEO Simon Roberts had already revealed before the update that consumers are making more trips but buying smaller baskets, and there have been other notable shifts in behaviour such as increased demand for frozen food and own-brand labels.

Sainsbury’s is investing £500 million over the two years to the end of March 2023 to keep prices low for consumers as they tighten their belts amid the cost-of-living crisis, with a focus on everyday items. This is being funded by cutting costs before cost inflation starts to bite. Sainsbury’s is trying to delay passing on higher costs to customers in the form of higher prices, underpinned by its Aldi Price Match and Price Lock campaigns.

‘The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda,’ Roberts said this morning.

Sainsbury’s reiterates full year expectations

The supermarket reiterated its ambition to deliver underlying pretax profit of £630 million to £690 million over the full year, which will be down 5.5% to 15.7% from the £730 million delivered in the last financial year as shopping habits continue to normalise.

Sainsbury’s chief financial officer to retire in 2023

Chief financial officer Kevin O’Byrne will retire at the end of the current financial year in March 2023, when he will be replaced by current commercial and retail finance director Blathnaid Bergin.

Bergin has been with Sainsbury’s since 2019 and beforehand worked as the chief finance operations officer at insurer Aviva and has held similar roles at RSA Insurance.

Attention now turns to the Sainsbury’s AGM

Sainsbury’s is scheduled to hold its annual general meeting on Thursday July 7. This could be significant as a group of shareholders, including HSBC and Legal & General, are pushing for the supermarket to accredit itself with the lobby group Living Wage Foundation which, if passed, could mean Sainsbury’s will have to raise wages in-line with whatever the foundation believes is a real living wage.

‘We are proud to be the first major supermarket to pay the Living Wage to all colleagues, regardless of where they live - and to have increased Sainsbury's colleague pay by 25% and Argos by 39% over the past five years,’ Roberts said this morning.

Some other shareholders, such as proxy advisers Glass Lewis and Institutional Shareholder Services, have recommended investors vote against the resolution, warning that it is on the verge of micromanagement by shareholders. They have also warned that it could force the cost base to soar and limit the supermarket’s flexibility.

The Living Wage Foundation currently defines a real living wage as £11.05 per hour in London and £9.90 everywhere else, whereas the minimum wage currently sits at £9.50.

Where next for the Sainsbury’s share price?

Sainsbury’s shares have declined over 23% since the start of 2022, having significantly underperformed the wider market.

The stock has settled after sinking to a 19-month low of 203.3p last month. However, it has simultaneously struggled to break above 213.5p over the past month and is testing this level today.

A break above this level could see a swift recovery, first to the 50-day moving average at 224.0p and then to 245.0p, the level of support-turned resistance seen this year and roughly in-line with the 100-day moving average. Notably, the 14 brokers that cover Sainsbury’s have an average target price of 244.77p, implying there is almost 15% potential upside from the current share price.

On the downside, the 19-month low must hold to avoid opens the door to 198.0p. A move below here would be more significant as the next key level of support is below 187.0p.

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