J Sainsbury expected a £60m boost to profits after bumper Christmas trading driven by the closure of pubs and restaurants and customers splashing out more on luxury food.
Same-store sales at the UK’s second-largest grocer grew 9 per cent in the nine weeks to January 2, prompting the company to increase its guidance for full-year underlying pre-tax profit to £330m, from £270m.
Sainsbury’s said it had been helped by its geographic bias towards areas of the UK that were placed into higher levels of coronavirus restrictions just before Christmas, particularly London and parts of the south-east.
Customers bought fewer large turkeys and more small joints and alternatives such as beef or lamb, reflecting the limitations on large family gatherings. Sales of premium ranges were up 11 per cent.
Online grocery sales more than doubled in the weeks leading up to Christmas. Like its rivals, Sainsbury’s has dramatically increased capacity — from 340,000 orders per week last March to about 830,000 now — but said profitability had also improved.
Its shares were up almost 4 per cent in early trading on Thursday.
Sainsbury’s trading statement is the latest example of how essential retailers are benefiting during the pandemic. Discount store chain B&M, which was promoted into the FTSE 100 last year, on Thursday reported that its sales rose more than a fifth in the 13 weeks to Boxing Day, a significant increase on a year earlier.
On Monday, Wm Morrison said festive like-for-like sales were up more than 9 per cent after strong demand for items such as champagne and salmon.
Simon Roberts, Sainsbury’s chief executive, said that the pandemic had changed customers’ behaviour, with December 21 the biggest shopping day and Christmas Eve “the quietest in a decade”.
Orders per van increased and in-store picking rates had returned to pre-coronavirus levels, despite the limits imposed by social distancing, according to Mr Roberts. Click-and-collect accounted for 24 per cent of online orders during Christmas week; this type of business carries higher margins because there are no “last mile” delivery costs.
Sainsbury’s would evaluate ways to increase click-and-collect use while maintaining the choice of home delivery, he added.
Clive Black, analyst at Shore Capital, said the year-on-year increase in ecommerce capacity was “an amazing advancement” and noted that “this route to market is now demonstrably profitable, something for sector sceptics to note”.
The revised profit forecast includes the £410m impact of forgoing the UK government’s business rates relief, and while it is comfortably ahead of even the most optimistic market figure, it is more than 40 per cent below the £586m reported last year, due to the costs of hiring additional staff to cope with the pandemic.
Mr Roberts said he expected the current lockdown to be “more like November than March” — there had been no stockpiling this time, although a surge in demand after the latest lockdown was announced meant that “things were difficult for a few hours on Monday”.
He noted that about 8 per cent of staff were currently off sick or self-isolating. That is below the peak of the pandemic last year, but sickness rates are rising, which Mr Roberts said was a cause for concern across the industry. He added that while it was right that the most vulnerable were inoculated first, he wanted to see key workers “front and centre” as more vaccines became available.
Total sales growth, excluding fuel, for Sainsbury’s third quarter was 6.8 per cent, above the 5.2 per cent reported in the second quarter but not as high as the 8.4 per cent in the first quarter, which included several weeks of elevated grocery demand ahead of the UK’s first lockdown.
Sales at Argos, the company’s general merchandise chain, were up 8.4 per cent, helped by strong demand for televisions — it sold a set every three seconds over Black Friday — and gaming consoles.
Last year Sainsbury’s said it would close most of the shops it acquired via its 2016 takeover of Argos in favour of stores and collection points within its supermarkets.