Sainsbury’s breaks with tradition as FY profits are upgraded

30th Sep 2015

Photo credit: Sainsbury's plc

The UK’s third-biggest supermarket this morning announced its full-year profits would be higher than expected, despite recording its seventh consecutive fall in underlying sales for the second quarter.

Sainsbury’s on Wednesday saw shares rise 12 per cent as investors were encouraged by the retailer’s optimistic outlook on the months to come. Although like-for-like sales in the 16 weeks to 26th September may have fallen 1.1 per cent excluding fuel, the business said it now believes full-year profits to come in better than expected.

In a report released this morning, Sainsbury’s said it had made good progress during the quarter, despite the impact of food inflation on its categories. Speaking in light of the results, chief executive Mike Coupe said:

“During the quarter we saw an improvement in our key trading metrics. Both volume and transactions grew as the decline in average basket spend in supermarkets continued to stabilise. Whilst the market is clearly still challenging, with food deflation impacting many categories, we are making good progress on delivering our strategy.”

He added: “Year-to-date we have traded well, with both sales and cost savings ahead of expectations. Should current market trends continue, we expect our full year underlying profit before tax to be moderately ahead of our published consensus.”

This means underlying profits for the full-year are now expected to be ahead of the £548 million originally predicted, but there’s still a long way to go to reach last year’s figure of £681 million.

The supermarket group said it now expected full-year underlying profits to be "moderately ahead" of analysts' expectations of £548m. However, that is still well below last year's figure of £681m.

While Sainsbury’s strategy of having fewer special offers and instead favouring regularly low prices may sound like playing the long game, analysts will no-doubt be surprised by Coupe’s bold move in suggesting profits will be slightly ahead of expectations. It’s an unusual play from Sainsbury’s, but with the decline in like-for-like sales slowing, the retailer may have reason to celebrate before soon.

Bernstein Research suggested the surge in share price this morning was more likely attributed to its upbeat tone, instead of any hard facts found in the interim statement:

"The results represent a change of tone for Sainsbury's," they said.

"It has tried to take a cautious message up to now, that it will go 'toe to toe' with whatever price investment anyone else makes."

"That it is talking up guidance is now showing they are more confident in their strategic position."

Ava Szajna

My Retail Media


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