Supermarket group J Sainsbury (LON:SBRY) maintained its FY27 earnings and free cash flow guidance after a positive Q1 performance. Group LFL sales were up 2.1% in the 16 weeks to 20 June, driven by a 3.6% increase in grocery sales, ahead of the market.
Positive start
Despite a strong prior-year period, when grocery sales increased 5%, Sainsbury’s delivered positive growth in Q1. The 3.6% rise was ahead of house broker Shore Capital’s forecast of 2.75% to 3.25% and ahead of the market.
It was also well ahead of Tesco’s (LON:TESCO) 1.8% LFL sales growth in the 13 weeks to 30 May. Sainsbury’s claims more customers are choosing to do their big weekly shop in its stores, according to data from consultants Worldpanel.
The firm puts some of the increase in sales down to its revamped Nectar card loyalty scheme. It estimates customers saved an average of over £16 on a big £80-plus weekly shop by using Nectar Prices.
Non-food still challenging
In non-food, Tu Clothing and General Merchandise sales were down 2.1% and 6.3% respectively. Part of the drop in GM sales was due to range reduction and giving over more store space to food.
Overall, Argos LFL sales were down 0.5% during Q1 but encouragingly volume growth was slightly positive. Average selling prices were down due to a shift in sales mix towards lower ticket items and competitive pressures.
However, sales of fans rose during the recent heatwave as did sales of large screen TVs in time for the World Cup. Also worth noting, around 30% of sales are now coming through its app and the firm is launching its own Marketplace later this year.
Maintaining guidance
While acknowledging the positive start to the year, the firm said it was too early to discount the impact of the Middle East conflict on consumer sentiment. In this context it should be noted forecourt sales rose 17.5% during Q1 due to higher fuel prices and a soft prior-year comparator.
For the year to February 2027, the group has maintained its operating profit guidance of between £975 million and £1,075 million. As Shore Capital notes, the range is wide but the firm made the forecast as the Middle East conflict was in full swing.
All in all this is a decent performance from Sainsbury’s, and certainly better than Tesco managed in its first quarter. However, both firms are leaning on promotions, loyalty cards and Aldi Price Match campaigns to protect their market shares.
There is no question the discounters – in particular Lidl – are still making gains in the UK grocery market. As of mid-June, their combined share was up to 19.4%, more than 4% above Sainsbury’s, which is holding its own for now.
The big losers are Asda, Iceland and some of the smaller cut-price players. Meanwhile, at the premium end of the market Marks & Spencer (LON:MKS) is winning share from the big operators creating a two-way squeeze.
M&S is our preferred play in the grocery sector thanks to its combination of valuation, growth and fiercely loyal customer base. As long as volumes are growing, it can afford to maintain prices, while its online venture with Ocado (LON:OCDO) has turned into a major success.
Read the Sainsbury’s press release here:
https://corporate.sainsburys.co.uk/investors
