Key events
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said the “Arogs albatross neck around its neck can’t be ignored”.
At first glance, it’s a bit tough to work out what sort of results have landed in Sainsbury’s bagging area. Ultimately, the reduction in the rate of growth was partly to be expected, especially in grocery.
As inflation cools, the weather worsens and tough comparisons crop up on the course, eking out the amount of growth seen last year was always a difficult ask. But there is a lingering Sainsbury’s specific issue in its ownership of Argos. Electronics aren’t faring well in this economic climate, as people prioritise the essentials. General merchandise is the most cyclical area of the supermarket economy to be in, so being overweight in this arena really slows you down when times get tough. The additional exposure offsets and hides what has been a remarkable showing for the core grocery business.
Sainsbury’s was having a bit of an identity crisis, straddling the more vulnerable middle-line between premium and value. An awful lot of work has gone into improving products, value perception and innovation more generally, giving the group enough gusto to start moving market share in the right direction. AI ambitions to improve real-time customer service and experience are grand but a bit thin on detail, so an area to watch.
Investors are also being rewarded for their patience, with at least £250m making its way back to them once the sale of Sainsbury’s Bank assets to NatWest has completed.
Overall, Sainsbury’s has done just about all it can to better itself and it should be commended for that, but the Argos albatross around its neck can’t be ignored.
Analysts at Jefferies led by Frederick Wild and James Grzinic talked of an “exceptionally strong grocery performance” at Sainsbury’s.
An exceptionally strong grocery performance at Sainsbury’s in Q1 was diluted by a more downbeat delivery in the general merchandise businesses, particularly Argos. This should represent the trough, which feels well understood by the market given the shares’ recent underperformance.
Sunnier weather in recent weeks should underpin… acceleration, with the chief drivers through the rest of the year an improving consumer environment and an easing [year-on-year] comparative.
Grocery total growth remaining very strong at 4.8% as inflation stabilised, mix began to improve, and market share gains continued.
Introduction: Sainsbury’s sales slow despite Euro 2024 boost; eurozone inflation expected to slow
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Sales at Sainsbury’s have slowed despite a 25% jump in people buying TVs during Euro 2024, partly because of a big drop in sales at its Argos chain.
Food inflation has eased, and the supermarket group battled a “tough trading backdrop” on clothing and general merchandise amid poor weather and the cost of living crisis.
Like-for-like sales (at stores open at least a year), excluding fuel, slowed to 2.7% in the 16 weeks to 22 June, from 4.8% in the previous quarter.
Food sales growth eased to 4.8% from 7.3% as inflation across the market eased.
Argos sales plunged by 6.2% in the latest quarter, because people bought less garden furniture, paddling pools and other seasonal products than last year due to cold and wet weather. Sales electronics such as video games were also weak.
Sainsbury’s said:
Consumers continue to shop general merchandise more cautiously but respond to value.
More positive signs are coming through now in general merchandise with the better weather and the Summer of Sport ramping up.
As the warm weather hit last week, people immediately stocked up on cooling and garden products. Sainsbury’s said it sold more fans in one week than it had in the year to date. Thanks to the euros, TV sales have surged, as fans upgraded to better sets ahead of the big matches.
The supermarket chain stuck to its forecast of a retail underlying operating profit of between £1.01bn and £1.06bn this year, up between 5% and 10% from last year.
Later this morning, we’ll be getting ‘flash’ inflation figures for June from the eurozone.
Inflation in the 20-nation eurozone is expected to have fallen slightly, to 2.5% from 2.6% in May.
Eurostat, the European Commission’s office, will release the data at 10am BST. The core rate, which excludes volatile items like food and energy, is forecast to have eased to 2.8% from 2.9%.
The Agenda
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10am BST: Eurozone inflation for June (forecast: 2.5%)
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2.30pm BST: European Central Bank president Christine Lagarde speech
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2.30pm BST: US Federal Reserve chair Jerome Powell speech
