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Sainsbury's lifts profits forecast as drop in sales reduces

Published 30/09/2015

Sainsbury's posted a 1.1% drop in like-for-like second-quarter sales, excluding fuel - its seventh quarter of falling sales in a row
Sainsbury's posted a 1.1% drop in like-for-like second-quarter sales, excluding fuel - its seventh quarter of falling sales in a row

Sainsbury's delivered some welcome cheer from the under-pressure supermarket sector as it increased its profit outlook for the year after narrowing sales falls.

The chain posted a 1.1% drop in like-for-like second-quarter sales, excluding fuel - its seventh quarter of falling sales in a row.

But the decline was better than the 2.1% fall seen in the previous three months and Sainsbury's said it saw the number of sales and transactions rise, while it added that lower average basket spend in supermarkets continued to stabilise.

The group now expects full-year profits to be "moderately" ahead of the £548 million expected in the City, although this is still a sharp fall from the £681 million reported the previous year.

The Big Four supermarkets have been squeezed amid a fierce price war as they fight back against the increasing popularity of discounters Aldi and Lidl.

But Sainsbury's said it was being buoyed by its turnaround programme of price cuts and promotions, with better-than-expected sales and cost savings in its second quarter.

Mike Coupe, chief executive of Sainsbury's, said: "Whilst the market is clearly still challenging, with food deflation impacting many categories, we are making good progress on delivering our strategy."

Shares in the supermarket leapt as much as 14% higher after the profits upgrade and better-than-expected second-quarter sales performance.

Sainsbury's said t otal sales edged 0.3% higher in the 16 weeks to September 26, with sales volumes around 1% higher.

It posted a 4% rise in sales by volume of its premium Taste The Difference range as it said it was seeing the benefits of its plan to improve more than 3,000 own-brand products.

Mr Coupe, who took over from long-standing predecessor Justin King last July, unveiled a wide-ranging plan to fight back in November, which included price cuts to 1,100 items and an overhaul of its own-brand ranges.

But he said in the group's latest update that the market would remain challenging, with no respite from the damaging food price inflation that has hit the sector in recent years until at least the early part of next year "or beyond".

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said that, despite the chain's bullish update, " the size of the task ahead remains evident".

"Quite apart from the ferocity of the competition, Sainsbury's is up against food deflation, changing consumer trends and margin pressure," he added.

But analysts at Bernstein said the Sainsbury's update suggested a "more benign trading environment".

Sainsbury's has been outperforming its Big Four rivals, with the most recent data analysis from Kantar Worldpanel showing it was the only one of the major players to hold its market share steady, at 16.2%, in the 12 weeks to September 13.

The group has been boosted by its growing convenience store network, with another 27 outlets opened in the quarter, while online sales lifted by more than 15%.

Its back-to-school campaign helped clothing sales rise by nearly 13% in the second quarter, with more than 640,000 pairs of boys' trousers sold from its uniform range.

Mr Coupe also said the group, which recently increased pay for 137,000 staff by 4% to a basic rate of £7.36 an hour, would increase pay - including benefits - above the new national living wage over the next five years.

Rival Morrisons turned up the heat on Tuesday, pledging to pay its staff £8.20 an hour from March.

Mr Coupe said Sainsbury's staff enjoyed the benefits of a total package including annual bonuses, paid lunch breaks and pension contributions.

He added that the group's higher wage bills had already largely been factored in and were not expected to lead to price increases or job cuts.

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