J Sainsbury PLC (LSE:SBRY) delivered a solid set of interim results showing good growth in grocery sales in the second quarter and has maintained its full-year profit guidance even in the face of the current cost-of-living crisis.
In the results statement, Simon Roberts, Sainsbury's chief executive said: "We have grown market share in both grocery and general merchandise and investment in our stores and colleagues is supporting leading supermarket customer satisfaction and availability. Profits are significantly higher than pre-Covid levels and we are generating strong cash flow, supporting debt reduction and dividend payments."
He added: "We really get how tough it is for millions of households right now. Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can. We will have invested more than £500mln by March 2023 in keeping prices lower by cutting our costs at a faster rate than our competitors, meaning we have more firepower to battle inflation.
"Over the past year and a half we have consistently passed on less price inflation than our competitors and I am confident we have never been better value. Argos is also performing well in a market where customers are looking for reassurance that they are getting great value and availability."
For the 28 weeks ended 17 September 2022, the FTSE 100-listed retailer saw its grocery sales rise by 0.2%, with strong growth in the second quarter of 3.8% as lockdown comparatives eased, market price inflation accelerated, customers responded well to the strength of its offer and it benefited from warm weather. Grocery sales were 9.3% higher than in H1 2019/20.
Sainsbury's - which owns the Argos catalogue shopping chain - said its general merchandise sales were down 6.1% across H1 but up 1.2% in Q2, driven by improved availability, favourable summer weather and strong market share gains, with growth driven by categories such as consumer electronics and seasonal products.
Overall statutory group sales (excluding VAT) rose 4.4% in the first six months, with fuel sales jumping 39.5%, but like-for-like sales (excluding fuel) were up 0.8%, with Q2 up 3.7% after a decline of 4.0% in Q1, it added.
The group's retail operating profit was down 9%, which Sainsbury's said reflected its investment in value, reduced grocery and general merchandise volumes post-pandemic and higher operating costs, partially offset by a higher fuel contribution. Its statutory profit before tax of £376mln, was down 29% reflecting higher exceptional income in the prior year from settlement of legal disputes.
The company highlighted strong retail free cash flow of £759mln, up 37%, reflecting higher grocery sales and more typical seasonal working capital inflows against last year's impact of COVID-19 unwind and said it is on track to deliver guidance of at least £500mln of free cash flow in full-year 2022/23.
Sainsbury's said it continues to expect full-year 2022/23 underlying profit before tax of between £630mln and £690mln.
The company declared an interim dividend of 3.9p.
In an instant reaction to the numbers, Charlie Huggins, head of equities at Wealth Club, commented: "These are solid enough results from Sainsbury's, but it is difficult to get excited. It’s just such a tough industry, with fierce competition, fickle consumers and thin margins.
"UK grocery shoppers have abundant choice – from premium shops like Waitrose, Ocado and M&S to Asda, Aldi and Lidl at the other end. In the middle is Sainsbury's. It does its job perfectly well but isn’t perceived as the cheapest or the best. This makes for a tough gig, especially in an inflationary environment.
"To be fair to Sainsbury's, it isn’t taking this lying down. It has lowered prices and significantly increased online capacity. But all this comes at a cost. With the economy being strangled by higher interest rates and inflation, Sainsbury’s will have to run very hard just to stand still."