Sainsbury’s has hiked its profit expectations for the full year despite pledging action on price and mounting inflationary pressures following better-than-expected sales in the first quarter.
The supermarket announced this week that retail like-for-like sales in the 16 weeks to 26 June (excluding fuel) were up 1.6% despite the spike in sales in the corresponding period in 2020 amid lockdown stockpiling.
Sainsbury’s said it had built on last year’s strong momentum by growing grocery sales by 0.8% year on year on top of the 11.3% sales surge in the same quarter last year.
Core grocery sales were ahead of expected levels as they continued to benefit from higher in-home consumption as coronavirus restrictions have continued.
That continued strong grocery demand has enabled the supermarket to accelerate investment in the customer offer and “bring forward investments we had originally planned for next year,” said CEO Simon Roberts.
In particular, Sainsbury’s has committed to an additional £50m of price investment, focused on centre-of-plate products and everyday essentials, including seasonal soft fruits and meat, fish and poultry.
“We are absolutely committed to strengthening our price position relative to our competitors and we are really seeing the benefit of that,” Roberts said.
“We enter this period with our relative competitiveness at some of the best levels we have seen and that is clearly an important part of our customer offer as we go into a potentially higher inflationary environment.”
Despite its investment in price amid mounting inflationary pressures, Sainsbury’s upped its expectations for full-year underlying profit before tax to £660m from previous guidance of £620m due to the strong sales momentum.
However, Sainsbury’s suggested this strong sales momentum was likely to be a “first-half effect”, with more caution around the second half as restrictions continue to ease, customer behaviour normalises and pressure mounts on input costs.
Roberts said first quarter inflation had been relatively benign, with the inflationary impact of commodity prices and the impact of freight and logistics being mitigated by deflation in some fresh categories.He outlined the supermarket’s determination to resist fully passing on inflation to customers.
“I think it is pretty well trailed that inflation pressures are building, that is why we are very focused on our cost saving programme [and] are working hard with our suppliers to mitigate that impact as far as we possibly can,” he said.“Our intention here is absolutely to be committed to strengthening our price position as and if inflation builds a bit.”
Online grocery order numbers reduced gradually from peak levels during the quarter as more customers returned to shopping in stores. Sales were still up 29% year-on-year during the quarter and up 142% on a two-year basis.
General merchandise sales were 1.4% lower than last year’s elevated levels (when they grew 5.6%) but remained ahead of the group’s expectations. Despite global supply challenges, Sainsbury’s suggested this positive sales momentum in the category was likely to continue for the remainder of the year.