First-half profits from J Sainsbury PLC (LSE:SBRY) next Thursday, 3 November, are expected to be at the bottom end of the supermarket chain's guidance range from modest sales growth and tighter margins.
Shore Capital, one of the company's house brokers, forecast an 11% decline in pre-tax profits to £318mln on grocery sales up 0.8%, Argos sales down 5% and clothing sales down 1%.
The group saw a 2.4% fall in grocery sales in the first quarter, which Susannah Streeter, senior investment analyst at Hargreaves Lansdown said reflected shoppers “being super-vigilant about what to put in their shopping baskets,” requiring the supermarket sector to adjust from the high demand during lockdowns but also the worsening cost-of-living crisis.
Investors will keep a keen eye on whether full year underlying profit is still set to come in between £630mln and £690mln, Streeter said, suggesting it “is beginning to look more likely it’ll come in near the lower range, with signs back in the summer that customers were watching every penny and every pound”.
Shore Cap analyst Clive Black said he was “cautiously” keeping his full-year forecasts for pre-tax profit unchanged at £636mln, which is near the lower end of the group’s guidance range.
He believes the FTSE 100 group navigated the spring and summer periods well, with its core grocery business being “effective” while general merchandise arm Argos didn’t suffer as much as initially feared.
Forecasts for the financial year 2024 may be hit as the macro factors continue to pile up, with Black saying Sainsbury’s, the second-largest of the ‘big four’ retailers, faces several external challenges, including rising grocery inflation and pressure on households from rising mortgage payments and energy bill.
Recent evidence via ONS retail sales figures indicated shoppers are tightening their belts more than forecast, which doesn’t bode well for own brand homeware and Argos ranges, said Streeter.
“However, a fresh round of investment in keeping prices low means the group's been able to offer its strongest value proposition in years, which should help it cling onto market share, despite being hit with plenty of headwinds in the second quarter with a fresh storm brewing for the month to come,” she said.
For 2024 Black forecasts pre-tax profits will be flat.
Sainsbury’s share price is down 30% in the year so far to 193p, despite being considered a non-discretionary spend among consumers.
Where it may have struggled, however, is consumers trading down to some of the discount retailers, such as Aldi and Lidl, with the former having recently overtaken Morrisons as the UK’s fourth largest supermarket.