Sainsbury’s Results To Offer Insight Into Current Trading Conditions

 Namnew, 30th October 2023

Sainsbury’s is set to post its interim results on Thursday, with City analysts looking to the UK’s second-largest supermarket to shed more light on how consumer spending is holding up ahead of the all-important Christmas trading period.

Whilst people’s budgets have come under pressure over the past year from soaring household bills and rocketing food inflation, recent data has shown an easing in food and drink price rises in recent months.

In a first-quarter update in July, Sainsbury’s Chief Executive Simon Roberts said inflation was “starting to fall”. The retailer is expected to confirm that this downward trajectory has continued in recent months, with investors hoping to see a material impact from this on its operating costs.

Sainsbury’s has previously stated that its underlying pre-tax profits for its current financial year will come in lower than the £690m it posted for the previous year. The retailer has invested heavily to improve its competitiveness and maintain its market share against fierce pressure from Aldi and Lidl.

This has seen Sainsbury’s introduce a wave of reductions via its new Nectar prices initiative. Darren Shirley and Clive Black, analysts at Shore Capital, predict that the retailer will post a 9.6% rise in grocery sales over the latest quarter.

“We expect Sainsbury’s to have continued to trade well in H1, supported by very good in-store executive and an ever-sharper relative pricing proposition,” they said.

However, cost-of-living pressures have particularly impacted demand for non-essential products, with areas such as clothing and big-ticket items suffering the most.

Sainsbury’s is significantly exposed to these markets through its Argos and Habitat businesses. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “This area could be vulnerable to a steeper slowdown, and investors will be monitoring how things have been going.

“That also makes the outlook statement very important – the next trading season is all about Christmas, and this will give an indication of how consumer spending is expected to hold up.”

NAM Implications:

• The key will be the extent to which Sainsbury’s will be prepared to sacrifice investor’s expectations of gross profit improvement…
• …in order to compete against the discounters on price.
• Another decision will be the extent to which they are prepared to drive down prices of non-foods…
• …to a level that will tempt the market.