J Sainsburys profits significantly higher than pre-Covid levels

J Sainsbury plc (LON:SBRY) has announced its interim results for the 28 weeks ended 17 September 2022.

Simon Roberts, Chief Executive of J Sainsbury plc, said: “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 £500 million 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 £150 million 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.”  

Financial Highlights

·    Grocery sales up 0.2 per cent in H1. Strong growth in Q2 of 3.8 per cent as lockdown comparatives eased, market price inflation accelerated, customers responded well to the strength of our offer and we benefited from warm weather. Grocery sales were 9.3 per cent higher than H1 19/20

·    General merchandise sales down 6.1 per cent across H1 but up 1.2 per cent in Q2, driven by improved availability, favourable summer weather and strong market share gains. Growth was driven by categories such as consumer electronics and seasonal products

·    Statutory Group sales (excluding VAT) up 4.4 per cent, with fuel sales up 39.5 per cent. Like-for-like sales (excluding fuel) down 0.8 per cent, with Q2 up 3.7 per cent after a decline of 4.0 per cent in Q1

·    Retail operating profit down 9 per cent, reflecting our 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 £340 million, down 8 per cent; Financial Services operating profit of £19 million, flat year-on-year, and finance costs 9 per cent lower. UPBT up 43 per cent versus H1 19/20

·    Statutory profit before tax of £376 million, down 29 per cent, reflecting higher exceptional income in the prior year from settlement of legal disputes

·    H1 net funds balance £361 million. Strong retail free cash flow of £759 million, up 37 per cent, reflecting higher grocery sales and more typical seasonal working capital inflows against last year’s impact of Covid unwind. On track to deliver guidance of at least £500 million free cash flow in FY22/23

·    Interim dividend of 3.9 pence

·    Guidance unchanged: continue to expect FY22/23 underlying profit before tax of between £630 million and £690 million

Strategic highlights

·    Food First: Strong grocery volume market share performance and only full choice supermarket to grow volume share versus pre-pandemic². As customer shopping habits return to normal, online sales are down, but we are gaining overall grocery market share as online customers return to shop in our stores³

o  Value: Consistently inflating behind the market⁴, driven by more than £500 million investment over two years to keep prices low. Continuing to strengthen value position versus competitors; value index versus Aldi has improved by 400 basis points in the past 12 months⁵

o  Our mix and basket size trends are proving more resilient than competitors and we are seeing less switching to Aldi and Lidl than all other full choice supermarkets⁶, reflecting the strength of our brand and customer base

o  Innovation: Launched over 600 new products and on track to launch 1,200 new products by the end of this year. Sales of new Summer Editions products exceeded expectations, over 70 per cent more products in our Autumn Editions range this year. Launching 300 new Christmas products, over 50 per cent of which are Taste the Difference. Taste the Difference is outperforming the market⁷ with H1 sales are up 14 per cent versus pre-pandemic, as customers choose to treat themselves at home

o  Service: £150 million annual investment in colleague pay and benefits to support colleagues with the cost of living and drive outstanding service. We have given hourly paid colleagues two pay rises this year, as well as free food during shifts and offered all colleagues improved discounts. We are making significant investments to enhance our stores, which are attracting more customers as shopping behaviours normalise post-pandemic, driving strong satisfaction scores in supermarkets ahead of competitors⁸

·    Brands that Deliver: We are building brands that deliver both for our customers and for our shareholders. Argos is considerably more profitable versus pre-pandemic and over 10 million customers are now registered with the Nectar app. Habitat is growing strongly and Tu’s great value fashion continues to win customers. Sainsbury’s Bank is delivering on its strategic objectives, focused on providing financial services products for Sainsbury’s and Argos customers

o  Argos delivered market outperformance⁹ and is more resilient than competitors. Argos sales grew 1.6 per cent in Q2. By focusing on investing in our brands and developing core capabilities, we have improved availability and range. Hot weather supported sales of seasonal and electronic goods over the Summer

o  Tu clothing full price sales remain above pre-pandemic levels. Womenswear dress sales up 40 per cent

o  Continued focus on building the Habitat brand with strong sales growth in Habitat Kids and improved customer satisfaction scores¹⁰

o  Over 10 million customers have downloaded the Nectar app; My Nectar Prices is helping customers save over £100 a year. We now expect Nectar360 to deliver incremental profits of at least £90 million by March 2026, up from previous guidance of £60-70 million

o  Good progress against plan to simplify and strengthen Financial Services reflected in solid performance despite challenging market conditions

·    Save to Invest: Strong delivery of structural cost savings. We expect to deliver over £1.3 billion of cost savings in the three years to FY23/24, doubling the run rate from the three years to FY19/20. This is helping mitigate higher than expected operating cost inflation.

·    Plan for Better: We are making good progress on our Plan for Better. We have removed ‘best before’ dates from 100 more products and, as part of our commitment to Help Everyone Eat Better, at least 75 per cent of products price matched to Aldi are a healthy choice. We have distributed over six million meals in partnership with Neighbourly in the last year and introduced refreshed Human Rights commitments. We have reduced greenhouse gas emissions within our own operations by 44.5 per cent year-on-year, supporting our accelerated commitment to be Net Zero by 2035

Outlook

Trading momentum has remained strong in the first few weeks of the second half and we have continued to make volume market share gains. This reflects continued investment in our customer offer, supported by the strength of our financial position and cost savings programme.

We are well placed through the peak trading period and into next financial year to support customers as they manage further cost of living pressures. We are half way through a £1.3 billion cost saving programme that has doubled the run rate of previous years and we are confident in our competitive position in the face of macro challenges and operating cost inflation.

We continue to expect underlying profit before tax in FY22/23 to be between £630 million and £690 million and to generate retail free cash flow of at least £500 million.

Notes

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

A webcast presentation and live Q&A will be held at 9:00 (GMT). This will be available to view on our website at the following link: https://sainsbury-s-q2-interim-results-presentation.open-exchange.net/registration  

A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event.

Sainsbury’s will issue its 2022/23 Third Quarter Trading Statement at 07:00 (GMT) on 11 January 2023.