Sainsbury’s sales surge but higher costs subdues profit outlook

Sainsbury’s (LON:SBRY) have enjoyed surging sales during the coronavirus lockdown as total sales excluding fuel rose 8.5% in the 16 weeks to 27th June.

However, the supermarket also said higher operational costs and the cost of keeping staff and customers safe offset the jump in sales to the extent they saw underlying profit flat in the full as they kept expectations unchanged.

The jump in sales was driven coronavirus related consumer behaviour which saw home delivery sales up 78% and collection sales up 53%.

Sainsbury’s shares ground out a 1% gain on Wednesday morning after the trading statement was released.

“The last four months have been extraordinary in so many ways and our colleagues have done an amazing job adapting our business. They have worked tirelessly to keep everyone safe, to help feed the nation and to support our communities and the most vulnerable in society,” said Simon Roberts, Chief Executive Officer.

“Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks, SmartShop now accounts for more than half of sales in some supermarkets and Argos sales were strong while operating as an online-only business for almost twelve weeks. Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre Convenience stores were all significantly down year on year as a result of lockdown.

Mr Roberts also highlighted the continued work Sainsbury’s was doing on price, one of the key competition points in the grocery market before coronavirus.

“We have worked really hard to listen and to respond to customers throughout the crisis. We have lowered prices on many key products as we continue to focus on lower regular prices. Our price position versus our competitors has improved in the quarter, Sainsbury’s key customer feedback scores are at record levels and we have gained market share,” Robert said.

“The coming weeks and months will continue to be challenging for our customers and our colleagues and we do not expect the current strong sales growth to continue. A number of the decisions we have made have materially increased costs but meant that we have done the right thing for our customers and set us up well for the future.”

The Sainsbury’s share price is one of the FTSE 100’s better performers of 2020, falling a little over 8%, whilst the broader index is down 18%.

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