Sainsbury's second quarter better than expected - UPDATE
Second quarter numbers from Sainsbury were better than expected, with like-for-like sales excluding fuel down 2.8% as competitive forces in the grocery market accelerated.
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Analysts at Shore Capital had been expecting a drop of 3.5% and others fearing an even bigger decline.
Like-for-like sales, also excluding fuel, for the first six months of the year have therefore fallen 2.1%.
The company expects this to be roughly repeated in the second half, having last guided that it would be similar to last year.
Price reductions by its Big Four supermarket competitors has been “significant” and coupled with intense short-term promotional activity, which combined with favourable commodity markets has resulted in deflation in many areas of the food business.
With rival Tesco on Tuesday revealing it now subject of a full investigation by the financial regulator for pushing its accounting practices too far, Sainsbury's chief executive Mike Coupe said on Wednesday to the BBC that he was "100% confident" that the company has not done the same.
Coupe also unveiled a "no stone unturned" strategic review, with results to be revealed in Sainsbury's interim results on 12 November, leaving investors fearing the dividend could be cut.
Total retail sales for the second quarter were down 0.8% excluding fuel, meaning total retail sales for the whole of the first half were flat excluding fuel.
“The market remains dynamic and fiercely competitive,” said Coupe. “The long-running trend of more frequent, convenient shopping has accelerated, resulting in smaller basket sizes.”
Sainsbury's convenience stores reached annualised sales of £2bn as they continue to grow strongly, at around 17%, with 23 new convenience stores opened and 10 refurbished.
Online sales grew by around 7%, hit by “a high level of competitor customer acquisition activity” during the period.
Although the general merchandise and clothing businesses continue to deliver strong growth, the core estate, excluding online and convenience, therefore saw sales fall by around 3.5% as two new supermarkets were opened, three extended and two refurbished.
In a partnership to target the budget end of the market, Sainsbury's is on track to deliver five new Netto stores by the end of the year.
The company also rejigged its price promotions, simplifying its Brand Match deal, to only match Asda's prices on brands and no longer compare them with Tesco.
Analyst Bryan Roberts at Kantar Retail said the update contained few surprises, but seemed to confirm the retailer, having hitherto been insulated from the discounter chill, "has started ceding shoppers to the more price-led retailers".
"In this context, a move to offer lower non-promotional prices is a welcome one, although we are less than convinced by the clarity of the messaging around it."
He added: "Fears over Sainsbury’s margins and the dividend will be intensified, particularly as Tesco will come out of the traps in 2015 with all guns blazing."
Shore Cap said it was reassessing its Sainsbury model leading to a material cut in expectations for both earnings and dividend per share.
"Whilst we anticipate a cut in dividend, we may be putting the cart before the horse and Sainsbury’s management may engineer an improvement in trading alongside lower capital expenditure and a lower cost base that delivers a better and more sustainable outcome."
Shares in Sainsbury's were down 5.6% to 237.4p by 13:30 on Wednesday.