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Sainsbury’s has posted an improved second quarter sales performance, but profits were hit by investment in price amid soaring inflation.

The UK’s second largest supermarket saw grocery sales rise 0.2% in the 28 weeks to 17 September after stronger growth in the second quarter of 3.8% as lockdown comparatives eased and price inflation accelerated.

Sainsbury’s said customers had “responded well to the strength of our offer”, while sales also benefitted from the warm summer weather.

It claimed to be the only full choice supermarket to grow volume share versus pre-pandemic. As customer shopping habits return to normal, online sales are down, but it said it is gaining overall grocery market share as online customers return to shop in stores.

Sainsbury’s said its price inflation had been “consistently behind the market”, driven by more than £500 million investment over two years to keep prices low.

Meanwhile, its mix and basket size trends are “proving more resilient than competitors” and it said it is seeing less direct switching to Aldi and Lidl than all other full choice supermarkets.

General merchandise sales were down 6.1% across the first six months of the year, but up 1.2% in the second quarter, driven by improved availability, favourable summer weather and strong market share gains in categories such as consumer electronics and seasonal products.

Overall statutory group sales (excluding VAT) were up 4.4%, inflation by fuel sales growth of 39.5%.

Total like-for-like sales (excluding fuel) were down 0.8%, but the second quarter was up 3.7% after a decline of 4%.

Overall retail operating profit fell back 9%, reflecting the supermarket’s investment in value, reduced grocery and general merchandise volumes post-pandemic and higher operating costs, partially offset by a higher fuel contribution

Underlying profit before tax of £340m was down 8%, while statutory profit before tax of £376m was down 29% primarily due to higher exceptional income in the prior year from settlement of legal disputes

Despite the first half profits dip, Sainsbury’s reiterated guidance and continues to expect full year underlying profit before tax of between £630m and £690m.

CEO Simon Roberts commented: “Two years ago we launched our plan to put food back at the heart of Sainsbury’s. We committed to improve shareholder returns by creating a simpler business and reducing costs to invest in lower prices, food innovation and maintaining colleague and customer satisfaction. We have grown market share in both grocery and general merchandise and investment in our stores and colleagues is supporting leading supermarket customer satisfaction and availability. Profits are significantly higher than pre-Covid levels and we are generating strong cash flow, supporting debt reduction and dividend payments.

“We really get how tough it is for millions of households right now. Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can. We will have invested more than £500m by March 2023 in keeping prices lower by cutting our costs at a faster rate than our competitors1, meaning we have more firepower to battle inflation. Over the past year and a half we have consistently passed on less price inflation than our competitors and I am confident we have never been better value. Argos is also performing well in a market where customers are looking for reassurance that they are getting great value and availability.

“We were the first supermarket to give our colleagues a second pay rise this year and have invested £150m to support them and drive outstanding service. I want to thank all my colleagues for their hard work and dedication and for everything they are doing to deliver for our customers. Our strong results are testament to the outstanding commitment and contribution from every member of our team.”

Sainsbury’s shares are up 3.1% so far this morning to 204p.

Morning update

Wholesaler Kitwave has announced a pre-close trading update for the year ended 31 October 2022, with its strong first half performance continuing for the full financial year.

Due to this continuation of positive trading, the board expects the results for the full financial year to be in line with the upgraded market expectations referred to in the interim results of the group published in July.

During the year, the group continued to execute its strategy to grow the business both organically and by acquisition, successfully integrating M. J. Baker Foodservice into the its foodservice division during the period.

Investment in the business also targeted improving the sales journey for customers, with the launch of a web platform enabling customers to more easily order products from across each of its divisions. The platform has returned “highly encouraging results”, both in terms of order numbers and sizes as well as positive customer feedback.

The group said it remains conscious of wider macroeconomic conditions, including increases in interest rates and inflationary pressures, particularly labour rates and fuel prices, all of which will continue to impact operating costs.

However, the group has taken prudent measures to mitigate these risks and will continue to recover these costs, wherever possible.

CEO Paul Young commented: “I am pleased to report another strong financial and operational year for the Group. In a challenging environment, Kitwave’s strong market performance is a testament to our proven strategy and our resilience to external market pressures.

“As expected, M. J. Baker has been an excellent addition to the Group’s foodservice division, with its performance since its integration validating our strategy of seeking to identify acquisition opportunities that help to create strong synergies within the Group. The investment into the new Wakefield site and the launch of our web platform for customers indicate how we are constantly streamlining and improving our processes to remain at the forefront of innovation in the delivered-wholesale industry.

“As outlined earlier in the year, the strong H1 performance enabled us to improve our financial expectations for the full year. A further robust H2 has ensured that we expect to meet these targets, positioning the Group well going forward, despite ongoing external pressures. As we enter the new financial year, this momentum continues and the outlook for the Group remains positive.”

“With considerable growth opportunities still available, both in the form of organic developments and through strategic, complementary acquisitions, we look forward to updating the market further on our continued progress.”

AIM-listed Russian grocery group X5 Retail Group has finalised a strategic partnership with Krasny Yar and Slata groups, two of the leading retailers in Eastern Siberia.

As part of the agreement, X5 acquired 70% of Krasny Yar’s and Slata’s businesses following the relevant approvals by Russian authorities. Once all regulatory requirements are met, Krasny Yar Group will operate 232 stores while Slata Group’s business will comprise 362 stores.

Both retail chains will retain their brands and business models, while some processes will be integrated with X5 to achieve synergies, including in procurement and logistics.

On the markets this morning, the FTSE 100 has slipped back 0.4% to 7,112.8pts.

Along with Sainsbury’s, risers include Haleon, up 2.2% to 273p, PayPoint, up 2.2% to 586.4p and Nichols, up 1.4% to 1,150.3p.

Fallers include Bakkavor, down 3.2% to 90p, THG, down 2.9% to 54.2p and Deliveroo, down 2.8% to 85.5p.

Yesterday in the City

The FTSE 100 fell back 0.6% yesterday to close at 7,144.1pts.

After a strong day for online consumer stocks on Tuesday, fallers included THG, down 5.9% to 55.8p, Just Eat, down 5.6% to 1,509.6p and Naked Wines, down 2.4% to 104.6p.

Other fallers included British American Tobacco, down 5.5% to 3,274p after a broker downgrade, Pets at Home, down 4.8% to 279.6p, Imperial Brands, down 2.2% to 2,073p and DS Smith, down 1.9% to 286.4p.

Risers included Virgin Wines, up 12.8% to 57.5p, McBride, up 6.5% to 24.5p, Hotel Chocolat, up 3.8% to 163p, WH Smith, up 3.8% to 1,252p, FeverTree, up 2.6% to 1,000p, AG Barr, up 1.8% to 456.5p and B&M European Value Retail, up 1.8% to 343.9p