Sainsbury's shares fall on Q1 sales slowdown

Sainsbury's shares were in the red on Tuesday despite the supermarket reporting a "market-beating" grocery performance in its first quarter, as like-for-like group sales growth slowing dramatically on the back of declines in general merchandise and at Argos.

Total retail sales excluding fuel increased by 2.6% year-on-year in the 16 weeks to 22 June, with like-for-like sales rising by 2.7%. That's down from the 4.8% LFL growth seen in the fourth quarter of the previous financial year and 7.4% growth in the third.

The stock was down 4.3% at 246.6p by 0905 BST, its lowest level since March.

Nevertheless, the company said it achieved the biggest market-share gains of any grocer during the period, with consistent net switching gains by customers, according to Kantar Worldpanel data.

Grocery sales increased by a "market-beating" 4.8% during the quarter, with Sainsbury's hailing increases in basket sizes and competitive pricing driving volume growth.

However, general merchandise and clothing sales dropped by 4.3% on last year – a slight improvement from the 5.5% decline in the fourth quarter – as better clothing sales momentum was offset by weaker seasonal general merchandise sales.

At its Argos division, sales excluding the recently closed Republic of Ireland business were down 6.2% which it said reflected a particularly strong comparative period with significantly lower seasonal sales and weaker demand for consumer electronics.

Analysts at Jefferies said an "exceptionally strong" grocery performance by Sainsbury's was "diluted by a more downbeat delivery in the general merchandise businesses".

However, the broker said this "should represent the trough" given the improving weather in recent weeks, which should support an acceleration in growth quarter-on-quarter, especially in light of an improving consumer environment and easier comparatives with last year.

"We are pleased with our market-beating grocery performance and the early progress we're making against our Next Level Sainsbury's plan. We've been winning from competitors every month for 15 months, as more and more people are choosing Sainsbury's for their big weekly shop," said chief executive Simon Roberts.

Sainsbury's continues to expect retail underlying operating profit to grow by 5-10% to £1.01-1.06bn for the year ending 2 March 2025, and retail free cash flow of "at least" £500m, down from £639m previously.