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Christmas jumpers and Prosecco help Sainsbury's beat Christmas sales forecast Sainsbury's shares fall to 11-year low after a dismal Christmas sales slide
(about 17 hours later)
Christmas jumpers, Prosecco and convenience shopping helped Sainsbury’s to achieve better than expected sales for the Christmas quarter. Sainsbury’s shares have sunk to an 11-year low, as the scale of change in the supermarket landscape was laid bare following a reasonable but ultimately disappointing Christmas.
Despite a 1.7 per cent decline in like-for-like retail sales, excluding fuel, in its third quarter, the supermarket saw growth in specific areas – while the week before Christmas was a record-breaking one that saw over 29.5 million customer transactions. The UK’s third largest supermarket group revealed sales had fallen over the festive period for the first time in a decade and Mike Coupe, its chief executive, admitted that this season has been tougher than any in his career.
Sainsbury’s sold more than twice as many Christmas jumpers as last year. Many of these were designed by staff members, including he best-selling “Snowman” jumper. He denied suggestions that Sainsbury’s future is now in Tesco’s hands, as all eyes turn today to its larger rival, which is unveiling its new boss Dave Lewis’s rescue plan.
And sales of the luxury Taste the Difference range grew by five per cent year-on-year. Stores sold over 57 million mince pies and over 550,000 turkeys, up eight per cent year-on-year, while sales of Taste the Difference Conegliano Prosecco grew by over 30 per cent. Sainsbury’s revealed a 1.7 per cent drop in sales in the 14 weeks to 3 January, which beat analysts’ expectations of a 3 per cent fall but failed to halt a slide in the shares.
The trend of more frequent and local shopping saw a more than 16 per cent rise in Sainsbury’s convenience business over the quarter. There were over six million convenience customer transactions in the week before Christmas – with the largest ever day for convenience sales on 24 December, taking over £8 million. Mr Coupe explained: “I’ve been in the industry 30 years and this is the toughest Christmas I’ve seen in my time at Sainsbury’s and in the industry.” He added that convenience store sales had risen 16 per cent and online sales rose 6 per cent; however, he refused to put a figure on the sharp fall in its traditional larger store estate.
Meanwhile, in the three days to 23 December, more than 110,000 online orders were delivered to customers. There was some optimism that the rate at which the discounters Aldi and Lidl are growing will continue to slow down over the year, and Mr Coupe reckons that the £150m hit that Sainsbury’s is taking to profits in order to cut prices will help the grocer secure its future.
Today’s results topped analysts’ forecasts of a decline of 2.5-4.4 per cent and represent an improvement from a second quarter decline of 2.8 per cent. “It’s undoubtedly a fiercely competitive market,” he said. “There is no doubt industry margins have fallen.”
The grocer's total third quarter sales fell 0.4 per cent, excluding fuel. Analysts suggested that despite Sainsbury’s making logical changes to the business, Tesco could steal back many customers who switched in the past decade.
But the figures show that the pressure from discounters and an industry price war are still taking their toll on the supermarket. Dave McCarthy, a retail analyst at HSBC, explained: “Sainsbury’s guidance is for a fall in profits and dividends… Although this is a realistic scenario, it does not make for an attractive investment proposition. But the investment case is made worse by the prospect of Tesco getting more aggressive and competitively effective.
And Sainsbury’s said the outlook for the remainder of the financial year is set to remain challenging. “We believe that Sainsbury’s future largely lies in Tesco’s hands. For much of the last decade, Tesco played its hand badly and allowed Sainsbury to recover. But a change in management and strategy at Tesco is likely to change that, in our view.”
In November the supermarket said it would cut costs, dividends and plans to open new stores to spend another 150 million pounds ($227 million) on lowering prices. This week, Sainsbury's lowered prices on more than 700 products, including its meat, fish and poultry categories. Mr Coupe countered: “I’ve spent my career competing with Tesco and I don’t agree that our fate, our destiny, is in other people’s hands.”
Chief executive Mike Coupe said: "Sainsbury’s has provided a great Christmas for our customers. Food price deflation and falling fuel prices have enabled our customers to treat themselves over the festive period." He added that the Christmas period saw 57 million mince pies sold, 550,000 turkeys – up 8 per cent year on year – and a record £8m spent in convenience stores on Christmas Eve alone.
He added: "The outlook for the remainder of the financial year is set to remain challenging, with food price deflation likely to continue. Our performance in the third quarter showed an improving trend quarter-on-quarter. The shares closed down 5p at 229.6p, at levels not seen since April 2003.
"However, given the uncertainty in the trading environment, food price deflation and the price reductions we announced this week, we currently expect our fourth quarter like-for-like to be similar to that of our first half. Our prices versus our supermarket peers have never been better and alongside our differentiated quality and service offer, we are confident we will help our customers Live Well for Less throughout 2015." Last night Tesco gave the first indication of its plans by revealing price cuts on 380 branded products, including Tetley tea and Hovis bread, averaging 25 per cent, while also promising to apply the lower prices in both its large and convenience stores.
Tesco is also expected to try to defend market leadership with further price reductions. It will give an update on trading and strategy on Thursday.