Sainsbury’s enjoys record festive sales but challenges lie in store for 2023: reaction

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Supermarket major Sainsbury’s has cashed in on early Christmas shopping after posting an increase in sales over the key festive quarter despite inflationary pressures.

The UK’s second largest supermarket chain said profits are on track to hit the top end of previous guidance following the bumper Christmas performance. It revealed that total sales, excluding fuel, grew by 5.2 per cent over the 16 weeks to January 7, compared with the same period a year earlier. Growth was buoyed by “inflation and relatively resilient volume trends”.

The trading update showed that like-for-like sales rose 5.9 per cent over the quarter, with a 5.6 per cent increase in grocery sales. Sainsbury’s also revealed that general merchandise sales - which include trade through its Argos business and Tu clothing - were “stronger than expected”. It added that the quarter included a 7.1 per cent increase over the latest six weeks amid a strong Christmas performance.

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Profits for the year are now expected to be towards the “upper end” of its previously announced guidance of between £630 million and £690m. It highlighted that profits will be boosted by the firm’s finance costs, which are set to be £15m lower than previously expected.

The improved profit guidance comes as supermarket margins come under pressure from soaring food inflation and efforts to keep a lid on price increases for customers. In November, Sainsbury’s confirmed it will invest a further £50m into pricing by March, taking overall investment to improving prices to £550m.

Chief executive Simon Roberts said: “We delivered the best possible Christmas for customers as millions of households managed their budgets differently, hosting larger gatherings again and treating themselves at home. Customers shopped early, buying Christmas treats and fizz more than once, and looked for deals, taking advantage of Black Friday and other seasonal offers. Sales were also boosted by the World Cup as people celebrated more at home.”

John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, said: “The backdrop for consumers is expected to darken in 2023, and there are several hints at this in today’s statement. That said, Sainsbury’s is reasonably well placed in terms of the balance of its business offering and still has levers to pull in property - which could be sold and leased back - and further cost and efficiency savings, giving it the opportunity to keep pace with competitors and reinvest in product pricing.”

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The update came a day after discount rival Lidl revealed its sales jumped by almost a quarter over the key festive trading period as it was buoyed by cash-strapped shoppers switching from rivals.

Sainsbury's is ranked as the UK’s second largest supermarket chain, behind market leader Tesco.Sainsbury's is ranked as the UK’s second largest supermarket chain, behind market leader Tesco.
Sainsbury's is ranked as the UK’s second largest supermarket chain, behind market leader Tesco.

Orwa Mohamad, retail analyst at Third Bridge, noted: “Sainsbury’s focus on everyday low prices and its Aldi price-match scheme only mitigates market share losses. Meaningful levels of growth look very difficult over the next 12 months. The only way Sainsbury’s can really lighten the impact of the discounters is by playing to its strengths around product range, non-food items, convenience and being competitive on the key basket items. For now, discounters like Aldi or Lidl offer comparatively limited ranges.”

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