3 November 2022
If you are covering Sainsbury’s latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“This morning Sainsbury reported a better than expected set of Q2/H1 results, speaking positively about current trading and kept full year guidance unchanged. However this beat also represents a 9% reduction in profits - a reminder of how difficult it is to fully pass on extra costs in a very competitive UK food retail industry.
“Q2 total group sales increased 3.1%, excluding fuel, as we are no longer comparing against lockdown periods last year. However, all UK food retailers are currently losing share to the German discounters as cost of living pressures intensify.
“Grocery sales rose 3.8% - almost twice market expectations - as price inflation accelerated. Sainsbury try to make a positive out of their decision not to pass on all cost pressures to customers but this is more a requirement of a competitive market than corporate altruism. Food retail in the UK remains a low margin business and this is only going to be squeezed further as a result of the inflationary period we find ourselves in.
“Current trading has 'remained strong' in the first weeks of H2 and management believe they are gaining volume share even though industry data shows all full service food retailers losing share to the hard discounters.
“Tesco, by comparison, has over recent years been using its buying power (almost twice Sainsbury's market share) to deliver higher margins. Tesco is trading at a similar value to Sainsbury, yet is a better performing and fundamentally more profitable business.”
