Sainsbury’s results: Will efforts to keep prices low pay off?
Investors will turn their focus to Sainsbury’s first quarter trading update on Tuesday to see how shoppers are reacting to the impact of food inflation amid the cost of living crisis.
The supermarket is expected to post a jump in revenues driven by higher grocery sales over the quarter to June. Analysts at Shore and UBS told PA they expect Sainsbury’s to reveal sales growth of nine per cent which could provide “reason for optimism amid the volatile economic backdrop”.
Shareholders will also, however, be keen to see how higher costs are impacting the grocer’s profit margins, with the supermarket having already warned shareholders that annual profits for this year are expected to be dented by the brand’s investment in keeping prices low amid sky high food inflation.
Food inflation fell to 14.6 per cent this month, down from 15.4 per cent in May, figures from the British Retail Consortium (BRC) show, but customers still feel the pain of higher prices when shopping for grocery items.
Last week, the brand unveiled £15m worth of price cuts, following claims that ‘Big Four’ supermarkets were profiteering from the cost of living crisis.
Ahead of the update, analysts at AJ Bell said: “The big supermarket chains are going to be an interesting measure of inflation, how shoppers are responding to it and how the big grocers are managing to balance helping their customers out on price with the need to defend their own margins in the face of rising input costs.”
“Sainsbury’s shares are trading no higher now than they did in spring 1989 so investors are clearly unconvinced that the FTSE 100 firm can get the balance right, especially as 2016’s £1.4bn purchase of Argos no longer looks quite so transformational as it did back then,” they added.
In April, the grocery reported lower annual profits for last year despite a 5.3 per cent uptake in sales, as chief Simon Roberts revealed it spent over £500m on cutting prices for consumers.
AJ Bell analyst continued: “Analysts and shareholders will look to this first-quarter update for insight from Mr Roberts and team on costs, pricing and volumes, especially if there is any evidence that customers are trading down to cheaper brands or cutting out some purchases altogether.
“Tesco’s first-quarter trading statement in June featured warnings to this effect and disappointed the market, as it showed a 1.5 per cent like-for-like drop in sales.”