Sainsburys lifts FY forecasts after booming Christmas sales

Sainsbury’s lifted profit forecasts after a booming festive period as Britons treated themselves to champagne and steaks and online orders hit record levels in response to pandemic restrictions on the size of gatherings.

The supermarket chain on Thursday reported a 9.3% rise in like-for-like sales in the nine weeks to January 2. Like-for-like sales excluding fuel for the third quarter to January 2 rose 8.6% with total retail sales up 6.8%.

Sainsbury’s said it now expected to report underlying profit before tax of at least £330m in the year to March 2021 against previous expectations of £270m and compared with £586m a year ago after forgoing business rates relief of £410m.

"Many customers had to change their Christmas plans at the last minute and we sold smaller turkeys and more lamb and beef than normal," said chief executive Simon Roberts.

He said sales of products from its upmarket 'Taste the Difference' range were up 11%, with premium champagne sales rising 52%. Taste the Difference party food was popular throughout December and people did more home baking than usual with mincemeat sales up 24%.

"Customers still wanted New Year's Eve at home to feel special and we sold a record number of steaks," Roberts said.

"More customers bought their food online than ever before and we delivered 1.1m orders in the 10 days to Christmas, double the number of last year." Overall digital sales rose 81% and were 44% of total sales.

Sales at the company's Argos unit rose 8% with its fast track home delivery and click & collect beating expectations for Black Friday and Christmas.

Sainsbury's said grocery, general merchandise and clothing sales beat expectations throughout the quarter and particularly since the start of England's second national lockdown and subsequent increased restrictions throughout the UK.

"General merchandise and clothing gross margins additionally benefited from better than anticipated full price sales, driven by customers shopping earlier for Christmas and successful changes to our Black Friday trading strategy," the company said.

"The impact of the pandemic on sales, colleagues and costs adds additional uncertainty to our financial outlook for the remainder of the year."

Interactive Investor head of markets, Richard Hunter said the outlook for the company "will remain challenging, particularly given the pressure on pricing which the sector demands".

"There will also be significant costs arising from the redefinition of the business in the form of the overhaul of the Argos store estate and the extension to its convenience store format in the shape of its new 'Neighbourhood Hub',” he said.

"In the meantime, the resumption of payments to shareholders in the form of a special dividend results in a current yield of around 4.5%, which is punchy in this environment. The 24% spike in the share price over the last six months has undone much of the damage caused by the general economic outlook and costs relating to the pandemic, although the shares remain marginally down by 0.6% over the last year, as compared to a decline of 9.7% for the wider FTSE100."

"On balance, and based on prospects following its transformation, the current market consensus of the shares as a 'buy' is likely to remain intact."