There has been a fair degree of optimism over pre-Christmas trading numbers for the major supermarkets in the lead-up to the latest retail updates from the big beasts of UK food retail this week. In truth there may have been a little too much optimism, with Sainsbury's share price pushing up to its highest levels since August 2021 yesterday, while Tesco has also seen strong gains in the past few months, as its shares pushing up to one-year highs last week.
Today’s Q3 trading update from Sainsbury's has seen the UK's number two supermarket announce a solid set of numbers, with grocery sales up 9.3% for the quarter, with the pre-Christmas period seeing an 8.6% increase. The strong performance here suggests that the Nectar discounting policy is paying dividends for its core business, while it has expanded its Aldi price match to 550 essential everyday products.
Unsurprisingly, given the trends exhibited earlier this week in the BRC retail sales numbers, the weak spots were in clothing, general merchandising, and the Argos business, and this has weighed on the overall numbers, with total sales rising 6.5%, excluding fuel and like-for-like sales rising 7.4%.
General merchandise sales registered a decline of -0.6%, with clothing down -1.7%, with the weakness very apparent in the pre-Christmas period with declines of -3.7% and -6% respectively. The Argos business also registered soft numbers with a Q3 decline of -0.9% and -4 2% in the pre-Christmas period, in a pattern that suggested customers prioritised food spend over everything else.
It is clear from today’s numbers from Sainsbury's that consumers prioritised their spend over the Christmas period towards food and drink, eschewing more discretionary spending on bigger ticket items, even as the pressure on the cost-of-living continues to ease. On a more positive note, Sainsbury's did maintain full-year guidance for adjusted pre-tax profit of between £670m and £700m and free cash flow of £600m, however the shares have slipped back on disappointment that there was no upgrade to its full-year guidance.
All in all, today’s numbers are a solid performance, however markets had been expecting a little bit more given recent declines in the cost of living and the big jump in UK retail sales seen in November.
We’re also seeing weakness in Tesco and Marks & Spencer share prices in early trade today, on the basis that tomorrow’s updates from both will exhibit a similar trend when it comes to consumer spending. Marks & Spencer shares could be especially vulnerable given that its share price traded at its best levels since November 2018 earlier this week, and already has a lot of good news priced in.
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