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Sainsbury's gets a lift after uprating full year guidance

Sainsbury store front sign

Since Sainsbury’s share hit 15-month highs back in May the shares have struggled to hold those gains on concerns over the resilience of the UK economy at a time when supermarket costs are rising, and margins remain under pressure from the intense competition in the UK supermarket sector.

Despite this tough retail environment today's H1 numbers show that the UK's number 2 supermarket behind Tesco is more than holding its own when it comes to maintaining market share. 

Q1 was a solid quarter with like-for like sales excluding fuel rising 9.8%, with grocery sales seeing an increase of 11%, and today's H1 numbers have managed to build on that strong start.

The one area of weakness was in clothing sales which fell 3.7% with the supermarket reiterating its full year outlook of underlying profit of between £640m and £700m.

Today’s H1 numbers have seen Sainsbury revise that profit guidance towards the upper end of that range between £670m and £700m, with retail free cash flow upgraded from £500m to £600m.

Digging into the numbers themselves, H1 like-for like sales excluding fuel rose 8.4% with Q2 seeing an increase of 6.6%.

Grocery sales were particularly strong, rising 10.1%, while its Argos business saw general merchandise sales rise by 1.7%, which was a welcome surprise given that in the lead-up to today’s numbers this was an area that was identified as a possible weak spot.

As with Q1, clothing sales were a weak point but that isn’t surprising given recent trading updates from other clothing retailers who have reported weak sales, due to this year’s variable weather. These declined -14.6% in Q2, making an H1 decline of -8.4%, while fuel sales also saw a decline of -19.6% in H1.

H1 group revenue excl VAT came in at £16.98bn a rise of 3.5%.

Underlying H1 profits before tax came in at £340m, the same as last year, although underlying earnings per share were down 6% due to the higher rate of corporation tax. The dividend was kept unchanged at 3.9p per share.

Actual profits after tax came in at £155m, a decline of 46%.

On the underlying macro environment Sainsburys said that food inflation is still slowing and the supermarket said that it is passing on those savings to customers by way of their Nectar Prices program and extending them to over 6,000 products.

It also said it had extended its Aldi Price Match promise to 400 products.


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