Sainsbury’s shares soared as the supermarket said it would rake in higher-than-expected profits after sales at its big stores stabilised and it cut the cost of food thrown away.
The shares jumped more than 13% as investors seized on a rare piece of encouraging news from Britain’s battered supermarket sector. Shares in Tesco and Morrisons were also lifted amid hopes that shoppers are finally putting more items in their baskets after more than a year of price cuts.
Sales at Sainsbury’s stores open at least a year were still down – by 1.1% excluding the impact of fuel sales – in the 16 weeks to 26 September, but that was a marked improvement from the 2.1% decline seen in the previous quarter. Sainsbury’s online sales rose 15% and clothing sales rose by 13%.
The company said that the number of customer transactions and the volume of goods sold had both increased during the period. That came after Sainsbury’s improved the quality of 3,000 products, including selling riper avocados and lowering the sugar content in its own-brand yogurt.
“With a bit more disposable income in customers’ pockets we can be slightly more optimistic,” said Mike Coupe, chief executive.
Sales over the summer were better than expected as, Coupe said, there were signs of stabilisation at large stores, which have taken the brunt of sales falls as shoppers favour small neighbourhood outlets.
Coupe said there had also been a “pause for breath” in the pace of price cuts across the grocery market over the summer. Grocery prices fell by between 1.5% and 2% compared to 2.5% in the previous quarter.
He added that Sainsbury’s had been able to cut more costs than anticipated. Reducing the number of its promotions in favour of generally lower prices helped it predict demand more accurately and cut the amount of food wasted in its stores.
“[In the] 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,” Coupe said.
At least one analyst – Clive Black at Shore Capital – upgraded his profit expectation by 5.3% to £575m. “Sainsbury has surprised us, and we sense the market,” Black said.
Analysts’ average forecast for the year that ends in March is for pre-tax profit to fall to £548m from last year’s £681m.
Coupe warned that prices would continue to fall and Sainsbury’s had already invested more than £150m in lowering prices.
“This is a challenging market and I don’t think there is anything currently in the wind that suggests that will get any easier over the next period of time,” Coupe said.
Industry figures last week showed Sainsbury’s was the only one of the big-four grocers to increase sales in the past three months. All of the UK’s major grocers – Tesco, Asda, Morrisons and Sainsbury’s – are struggling to cope with rapidly changing shopping habits as shoppers switch to online stores, neighbourhood shops and discounters such as Aldi and Lidl.
Profits are also under pressure from wage increases after the chancellor announced a “national living wage” of £7.20 – effectively a new minimum wage for over-25s – rising to about £9 by 2020.
Sainsbury’s said it was in no rush to match basic pay rises for shopfloor staff announced by Morrisons and Lidl in the past week.
This month, Sainsbury’s increased its standard rate for shopfloor staff by 4% to £7.36 an hour. That figure has been overtaken by Lidl and Morrisons, which have both announced a basic rate of £8.20 – closer to the rate recommended by the Living Wage Foundation.
Coupe said his staff are paid for breaks and that the company paid £50m in bonuses last year so that, including perks, his staff took home about the same amount as Morrisons and Lidl staff under their latest pay deal.
He said: “There’s a lot of smoke and mirrors in this. If you stand back and look at what we pay colleagues on average over a year, then it is pretty much the same as Morrisons and Lidl ... Last year, we paid a £50m bonus to colleagues – that’s larger than the pay rise for Morrisons.”
Coupe added that Sainsbury’s will talk to staff about reorganising pay so they will earn more than the chancellor’s planned rate, and will at some time probably overtake the living wage as defined by the Living Wage Foundation.
Sainsbury’s shares closed up 31p at 261p, taking the shares above their 247p price at the start of the year for the first time. Tesco shares rose almost 5% and Morrisons’ were up more than 6%.
