Sainsbury’s shows signs of rehabilitation despite a plunge in profits, says GlobalData

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Following today’s release of Sainsbury’s H1 figures for FY2019/20, Thomas Brereton, retail analyst at GlobalData, a leading data and analytics company, comments: ‘‘Taking a quick glance at Sainsbury’s half-year results, it is understandable why its tumbling profits will hog the headlines. As well as a £41m decline in underlying profit (blamed upon the combined impact of phased cost savings, higher marketing costs and tough weather comparatives), statutory pre-tax profit all but disappeared (falling from £107m to £9m) due to recent review of the value of its store estate. And as for its retail performance, like-for-like sales ex. fuel fell -1.0%, distinctly shy of rival Tesco’s -0.3% drop over a similar period (with both supermarkets ailed by the ongoing price war in the grocery sector).

“But a deeper dive shows why Sainsbury’s is now feeling optimistic that it can turn itself around following the disarray experienced after the collapse of its planned merger with ASDA; taking the results at a quarterly level, Q2 shows a good improvement on Q1. While this comparison is slightly distorted (with Sainsbury’s showing growth yet underperforming a weather-buoyed market in Q2 2018), it signals that Sainsbury’s is a retailer now finding its feet after underperforming for the previous 18 months.

“A lot of this improvement comes from putting right a lot of self-made issues during 2018 – such as availability – Sainsbury’s must now be beginning to feel it has a clear direction forward. Its new prototype store at Hedge End provides significant more space towards the café, concessions and clothing (as well as the new Argos) over food and general merchandise, with Sainsbury’s embracing this metamorphosis into a department supermarket. But while this signals a vastly different outlook compared to its rivals (with almost all trimming non-food lines to focus on their core grocery offers), such format experimentation must be handled delicately to avoid deterring its core food shopper base. Furthermore, the c.290 Sainsbury’s stores that currently offer an Argos concession will undoubtedly be locations at the top of the list that were appropriate for such a transformation; and as Sainsbury’s presses ahead with the amalgamation, it potentially threatens to derail carefully worked trading densities, especially crucial within its smaller supermarkets and convenience stores.”