Sainsbury's strategy on track despite flat sales

Sainsbury’s has insisted that its strategy to trim prices and improve product availability is working despite the supermarket giant’s sales flatlining in the first half.

The retail giant is undergoing a restructuring of part of its store estate. Picture: Contributed

Meanwhile, a restructuring of the group’s store estate wiped out the bulk of profits in the six months to 21 September. A £203 million hit to its balance sheet from a series of store closures meant that pre-tax profits fell to just £9m from £107m a year earlier.

On the company’s preferred underlying measure, which strips out the one-off costs, pre-tax profits came in at £238m – down 14 per cent.

Sales during the period were flat at £15.1 billion. Like-for-like sales, excluding fuel, dipped 1 per cent, although Sainsbury’s said a 1.6 per cent fall in the first quarter of the financial year improved in the second – down just 0.2 per cent.

Sainsbury's is led by its chief executive Mike Coupe. Picture: Sainsbury's

The group improved sales across its businesses, which also include Argos, throughout the second quarter of the year. General merchandise sales fell 2 per cent in the second quarter, compared with a 3.1 per cent fall in the first, and clothing grew 3.3 per cent in Q2 compared with a 4.5 per cent slide in Q1.

Investing

Chief executive Mike Coupe said: “We are investing in hundreds of Sainsbury’s and Argos stores, introducing new products and services and continually improving service and availability. As a result, customer satisfaction has increased significantly year-on-year.”

He added that prices have been cut on 1,000 best-selling groceries, replacing the supermarket’s “Basics” range with new “Value” brands is progressing well, and 350 Taste The Difference products have been relaunched.

In September, Coupe updated investors on his longer-term plans, which will see 125 stores close, including Argos branches, but a greater number will be opened elsewhere.

John Moore, senior investment manager at Brewin Dolphin, said: “The message that accompanies this statement is positive from Sainsbury’s, which may help offset the immediate hard fact of a weak sales environment in absolute terms and relative to peers.”

Adam Vettese, an analyst at investment platform eToro, noted: “Sainsbury’s is in a state of flux. You get the feeling that it is still trying to find its feet since the failed merger with Asda.

“While these results are not terrible, they are certainly underwhelming… with the supermarket blaming the phasing of cost savings, higher marketing costs and poor weather on the dip in sales.”