Sainsbury’s shares were firmly higher on Thursday after the supermarket released very robust trading in their most recent half year period.
Sainsbury’s has actively set out to compete with discounters Lidl and Aldi on price, and the strategy is paying off. Extensive use of Nectar pricing brings many products in line with the discounters and helped drive a 10.1% volume increase in the half year.
Their efforts have increased market share as group retail sales for the period rose 8.4%.
Simon Roberts, Chief Executive of J Sainsbury plc, said: “Food is firmly back at the heart of Sainsbury’s. We’ve never been more competitive on price and our focus on value, innovation and service is giving more customers more reasons to shop with us.”
Sainsbury’s shares were 4.7% higher at the time of writing.
Considering the focus on low prices and higher volumes, shareholders will have been pleased to see retail operating margins decrease only 4 bps to 2.91%.
Strong performance during the period now means Sainsbury’s see underlying profit before tax in the range of £670m-£700m, the higher end of the previously guided £640m-£700m range.
“This is another solid trading update from Sainsbury’s with further volume growth in the second quarter and an improved market share performance. This means the group now expects profit for the year to come in at the top end of its previous guidance range,” said Wealth Club’s Charlie Huggins.
“Sainsbury’s has worked hard to lower prices in the face of intense competition. The launch of Nectar prices, where Nectar card holders save money on everyday items seems to have been well received and has helped the group to hold its own against Tesco and the German discounters.
“Food inflation is starting to fall and this should help ease pressure on consumers, whose finances have been squeezed from all angles by rising prices, no more so than for the weekly shop. That said, lower inflation also means volume growth will become a more important contributor to like-for-like sales in future periods. It is encouraging that Sainsbury’s volumes grew in the second quarter but it will need to maintain this momentum.”