Sainsbury's shares slide on guidance hold, weak merchandise sales

Shares in Sainsbury's fell on Wednesday after a broadly-upbeat Christmas trading update did not include any upgrade to full-year forecasts despite like-for-like sales at the UK supermarket chain rising 7.4% in the key trading period.

Hard-pressed customers struggling with inflation and rising prices “treated themselves” during the 16 weeks to January 6, buying record numbers of pigs in blankets, mince pies and sparkling wine, said chief executive Simon Roberts.

Third-quarter grocery sales rose 9.3%, but there was a 0.6% decline in general merchandise, while clothing sales fell 1.7%.

However, weak sales data from the British Retail Consortium this week highlighted the fact that consumers are cutting back on discretionary spending, exemplified by the lower sales in Sainsbury's non-grocery operations.

"Unsurprisingly... this that has dragged the shares lower, along with disappointment over the lack of an upgrade to its profit guidance," said CMC Markets analyst Michael Hewson.

"Today’s weakness in Sainsbury share price has also been replicated in similar weakness in Tesco and Marks & Spencer ahead of their numbers tomorrow with investors fearing similar trends of weak clothing and general merchandise."

Sales at its Argos chain fell 4.2% as shoppers reined in spending on electrical goods and furniture. The online catalogue and physical store operation received a boost in 2022 when demand for energy-saving gadgets such as electric blankets and air fryers took off amid crippling energy prices.

Argos sales were strong over the Black Friday discount period in November but weakened in December when it was trading against a strong comparative period a year earlier, when Royal Mail strikes saw home deliveries hit.

Overall, Sainsbury’s expects underlying profit before tax in 2023/24 of between £670m - 700 million, with a strong grocery performance offsetting weaker general merchandise and financial services contributions. The company also expects to generate retail free cash flow in 2023/24 of at least £600m.

Reporting by Frank Prenesti for Sharecast.com