Sainsbury’s expects stale profits even as online sales soar

J Sainsbury cautioned that its annual profit would stagnate as a jump in costs prompted by coronavirus offset a surge in online grocery sales.

The UK supermarket chain said its digital sales doubled in the quarter to June 27, driving an 8.5 per cent rise in its overall sales.

Total grocery sales rose 10.5 per cent, with general merchandise up 7.2 per cent. But there was no change to the guidance Sainsbury’s offered in April, with the benefit of increased sales and the UK government’s business rates holiday largely offset by £500m of additional costs related to Covid-19.

Simon Roberts, who took over as chief executive of the UK’s second-largest supermarket after Mike Coupe retired in June, said that expanding online capacity and implementing social distancing measures in stores had added significantly to operating costs.

Sainsbury’s is making 17 per cent of its food sales online after it hired 25,000 new staff and added 184 more click-and-collect points, taking weekly order capacity to 650,000.

“If I’m honest we’re still seeing the demand continue. I don’t think we’ve reached the high water mark here,” said Mr Roberts.

“When you listen to customers you hear a lot of feedback that they are enjoying shopping online. I think we need to prepare for substantially more people wishing to shop online then we saw at the beginning of this crisis”.

The supermarket’s sales figures do not include fuel, sales of which more than halved as the lockdown curtailed car travel. Including fuel, a low margin but still important business for Sainsbury’s, sales were down 2.1 per cent in total in the period.

Sales at Argos, the general merchandise chain Sainsbury’s acquired in 2016, were up 10.7 per cent in total, despite the closure of all of its 574 stores for much of the period. Argos customers could instead opt for home delivery or collect an order in a Sainsbury’s store.

Three-quarters of Argos stores remained closed and Mr Roberts said the company would “continue to listen to customers” regarding reopening.

He also warned against extrapolating the heady sales growth across the full year. “A number of [first-quarter] sales have been driven by what we think as being one-off effects . . . We’ve seen very strong weather, we’ve seen how Argos customers have shopped for products while they’ve been in lockdown at home and that’s brought forward a number of sales”.

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There was a notable 5 per cent fall in convenience store sales, driven by weakness in city centre locations popular with office workers. Rival Tesco last week reported a 9.9 per cent increase in sales at smaller convenience stores, albeit over a slightly different period.

Like Tesco, Sainsbury’s said its base case scenario “continues to underpin an expectation of broadly unchanged group underlying profit before tax for the full year.”

Analysts at Barclays said the sales growth was ahead of expectations, especially in general merchandise, and that the stable outlook at the bank was a relief after Tesco said its financial services unit could record an operating loss of £200m.

Sainsbury’s shares were little changed at 209p in early trade.


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