J Sainsbury plc (LON:SBRY) has upgraded its full-year profit guidance on the back of record sales in the week leading up to Christmas.
The UK’s second largest grocer echoed its rival WM Morrisons PLC (LON:MRW) which also reported a strong performance over the festive period on Tuesday.
1.1% rise in LFLs
In the 15 weeks to January 6, Sainsbury’s saw like-for-like sales, excluding fuel but including Argos, rise 1.1% – up from growth of 0.6% in the previous quarter and from 1% a year ago.
READ: Sainsbury's on the back foot as it lowers interim dividend and posts profit decline
Online sales – increasingly important for traditional bricks-and-mortar retailers – accounted for 20% of group sales during the quarter.
The strong performance was helped by record trading in the seven days before Christmas, with Friday, December 22 unsurprisingly the biggest sales day both in-store and online.
Full-year profits to be “moderately ahead” of forecasts
Unlike Morrisons, which said it managed to grow sales through offering competitive prices, Sainsbury’s saw more people buying its higher margin Taste the Difference food products.
As a result of its solid performance over the holiday season – a key period for all retailers – the supermarket now expects full-year underlying profits to be “moderately ahead” of consensus, which stood at £559mln before Wednesday’s announcement.
The upgrade has also come about due to synergies from its 2017 acquisition of Argos being realised earlier than forecast.
READ: Sainsbury's to slash 2,000 jobs to cut costs as it competes with Aldi and Lidl
Sainsbury’s said it now expects to achieve between £80-85mln of EBITDA by March 2018, ahead of its previous guidance of £65mln.
‘Shoppers treated themselves’
“We had a strong Christmas week, with record sales, over 340,000 online grocery orders and stellar growth in Argos Fast Track delivery and collection,” said chief executive Mike Coupe.
“Customers bought more Taste the Difference food than last year as people treated themselves and our popular 25p veg lines helped our customers live well for less.
He added: “General Merchandise and Clothing grew market share in a challenging market. Argos stores in Sainsbury's supermarkets performed particularly well and Argos saw record sales across the Black Friday period.”
Argos struggles
Sainsbury’s did warn shareholders that market conditions in the retail sector “remain challenging”, adding that it is still “cautious about the consumer environment” in the year ahead.
A few retailers have expressed similar concerns given the toxic combination of stagnating wage growth and rising inflation.
Argos is also a small blot on the landscape. General merchandise revenues – predominantly made up of Argos’ sales – fell 1.4% compared to the same quarter in 2016.
Sainsbury’s reckons it still outperformed the market though despite the “challenging conditions”.
The weaker performance is Argos is in stark contrast to last year when the catalogue retailer turbo-charged the group’s Christmas sales with revenue growth of 3.7%.
Growth lagging peers?
“Sainsbury’s delivered a decent set of Christmas numbers with like-for-like sales growth a shade ahead of market expectations, but it still seems to be underperforming competitors in terms of sales growth in its core business,” said ETX Capital analyst Neil Wilson.
“Morrisons group LFL sales excluding fuel were up 2.8% in the ten weeks to Jan 7th 2018, and up 3.7% over the last six weeks against very strong comparators.”
German discounter Lidl also revealed today that it grew sales by 16% in the final three months of 2018 as it set a record for the number of people coming into its stores in December.
The week beginning 18 December was its strongest ever trading week, the supermarket said.
Shares opened 1.7% to 252.7p on Wednesday.
--Updates for share price and analyst comment--