Sainsbury warns of Brexit-related cost uncertainties

Sainsbury reported a 0.5% drop in like-for-like sales (excluding fuel) in its fourth-quarter trading update (J Sainsbury plc/Flickr)

Sainsbury, Britain’s second largest retailer, has warned of turbulent times ahead related to Brexit, as it reported a 0.5% drop in like-for-like sales.

The retail market remained competitive in the wake of June’s Brexit vote, Sainsbury said. But, it was prepared to handle any rising import costs due to the weak value of sterling, it said.

Sainsbury group chief executive Mike Coupe said: “The market remains very competitive and the impact of cost price pressures remains uncertain.

“However, we are well-placed to navigate the external environment and remain focused on delivering our strategy.”

‘Well-placed to navigate’

The retail giant reported a 0.6% fall in like-for-like sales, excluding fuel, across the full year to March 11.

Sainsbury’s Q4 results
  • 0.5% fall in like-for-like sales
  • Online grocery sales up 0.7%

Sainsbury blamed the falling sales on the later timing of Easter and Mother’s Day this year. It projected sales would be up 0.1% if they fell on the same dates as last year.

Its online grocery sales were up 7%, with total orders up 8%, Sainsbury reported. Sales from the retailer’s convenience stores were also up 7%.

Five new supermarkets were opened across the year, with two closures. Sainsbury focused on developing new convenience stores, opening 41 across the year, with eight closures.

‘Making good progress’

“We are pleased with this performance and are making good progress against our key priorities,” Coupe said.

“Customers appreciate the quality, choice and value of our differentiated food offer and our Tu clothing brand again performed ahead of the market, with sales up five per cent.”

Sainsbury’s falling sales came after supermarket inflation doubled last month, meaning shoppers were paying more for their groceries, according to Kantar Worldpanel. Grocery inflation rose 1.4% in the three months to February 26. Butter, fish and tea prices were up 15.8%, 8.8% and 6% respectively.

Meanwhile, Sainsbury’s stir fry led our product recalls round up in February, after testing found the possible presence of salmonella in it.

What the analysts say
  • “Stripping out the Mother’s Day/Easter impact management estimate like-for-like sales would have been broadly flat, which would still represent a volume decline, particularly in core stores and relative underperformance to key competitors.”

David McCarthy, HSBC Global Research

  • “Sainsbury’s traditionally higher operating margins – 2.8% in 2015 – leave it better placed to weather the inflationary headwinds forecast for 2017 by providing it with greater flexibility to absorb some of the rising costs rather than pass on to the customer.”

Tom Berry, GlobalData

  • “Sainsbury is blaming the fall in sales on the timing of Mother’s Day and Easter, but this could show that we’re all tightening the purse strings while the uncertainty of the unstable climate. Worrying times for the supermarket chain.”

Martin Lane, money.co.uk

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