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Sainsbury's sales slide in ‘golden quarter’, however online growth offers silver lining

The FTSE 100 grocer reported like-for-like sales including fuel had fallen 1.1% in the 15 weeks to 4 January, with total retail sales down 0.9%

J Sainsbury PLC - Sainsbury's sees sales slide in ‘golden quarter’, however, online growth offers silver lining

J Sainsbury PLC’s (LON:SBRY) continued the trend of the UK’s major supermarkets suffering sales declines over the so-called ‘golden’ Christmas quarter, although strong growth in its online operations offered something of a silver lining.

In a trading update for the 15 weeks to 4 January, the FTSE 100 grocer reported like-for-like sales including fuel had fallen 1.1% in the period, while total retail sales slipped 0.9%.

READ: Sainsbury's, Tesco to showcase better Christmas numbers than Morrisons' lacklustre performance

The LFL sales slip was slightly worse than analyst expectations which had predicted that sales in the period would be mostly flat.

The company’s clothing division, Tu, was helped by colder weather and was the strongest performer in the quarter with 4.4% sales growth, followed by grocery at 0.4%. However, the firm was held back by a 3.9% decline in its general merchandise division, which includes Argos.

However, the company highlighted its performance online, where grocery orders jumped 7.3% to record levels in the period, while Argos had had its biggest digital Black Friday to date.

Sainsbury’s chief executive Mike Coupe said Argos had outperformed the market on sales of consumer electronics during the quarter, however, it had suffered a year-on-year decline in toy and gaming sales.

However, he added that the uptick in online sales was proof the firm’s digital investments were “paying off” with 20% of business in the quarter done online.

“We have a real sense of momentum in Sainsbury's and investment in our stores and improvements to service and availability have led to our highest customer satisfaction scores of the year”, Coupe said.

Looking ahead, Sainsbury’s said the consumer outlook for the new year continued to be “uncertain” amid a “highly competitive and promotional” retail market, although it argued that it is “well placed to navigate the external environment”.

Sainsbury’s performance in the period has turned out to be slightly better than its competitor, WM Morrison Supermarkets PLC (LON:MRW), which yesterday reported a 1.7% decline in LFL sales for the 22 weeks ending 5 January.

However, both Sainsbury’s and Morrisons have failed to provide specific figures for trading over the Christmas period, which has raised questions from some commentators around the true nature of their performance in the festive season.

Performance “encouraging”

AJ Bell’s Russ Mould said that the quarterly figures were “encouraging” following the period of Sainsbury’s failed merger with Asda last year that saw the company “take its eye off the ball”.

“In what amounts to a contest to be the best of a bad bunch, industry data shows Sainsbury’s performed least worst out of the ‘big four’ groceries firms during Christmas. This represents something of a turnaround”, Mould said.

However, he added that the recent weak performance from Argos may make some investors jittery as the retailer has often come to the rescue of the firm’s weaker supermarket operation.

“The market will therefore hope the recent weak performance at Argos genuinely reflects the one-off factors flagged by CEO Mike Coupe, like the lack of a big gaming release, and not something more troubling with the acquisition”, Mould said.

Sainsbury’s “toughing it out more effectively” than peers, says broker

In a note, broker Shore Capital said that the results showed that Sainsbury’s was “toughing it out more effectively” in a challenging market compared to its peers, meaning that commercial life for rivals such as Tesco PLC (LON:TSCO) could be more difficult year-on-year as it prepares to report its own Christmas trading update on Thursday.

ShoreCap’s analysts added that going forward Sainsbury's had indicated that its focus was likely to be on its existing retail asset base and developing its digital capabilities, particularly following the recent strong performance for its online operation.

“Evidence to support this assertion is evident in the opening of just two supermarkets and six convenience stores in the quarter plus ten Argos in Sainsbury’s (now 298)”, they said.

As a result, the broker said that while Sainsbury’s is “demonstrably not a growth story” it is “an increasingly robust, from a leverage perspective…income play” and retained their ‘hold’ rating on the stock.

Sainsbury’s shares were 0.8% lower at 229.1p in mid-morning trading on Wednesday.

--Adds analyst, broker comment and share price--

Quick facts: J Sainsbury PLC

Price: 213.1 GBX

Market: LSE
Market Cap: £46.9 m

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