Lockdown boost for Sainsbury’s but profits take a hit

● Analysts warn major supermarkets have been facing big increases in costs

Supermarket giant Sainsbury’s has enjoyed a surge in trading during lockdown as online sales more than doubled.

The group revealed that total sales jumped 8.5 per cent for the 16 weeks to 27 June, amid strong demand for store-cupboard essentials.

Profits are expected to take a hit of more than £500 million, however, due to the impact of the coronavirus pandemic, although this will be “broadly offset by business rates relief and stronger grocery sales”.

New chief executive Simon Roberts, who recently took over from Mike Coupe, also warned investors “we do not expect the current strong sales growth to continue” as he stressed that the coming months would continue to be challenging.

Grocery sales leapt 10.5 per cent during the latest quarter as online grocery orders rose to 650,000 per week from 370,000 for the same period last year.

Britain’s third largest supermarket chain, behind Tesco and Asda in the number one and two slots respectively, reported a 7.2 per cent increase in general merchandise sales as it was boosted by strong figures in its Argos business despite stores being shut for most of the quarter.

Argos sales rose by 10.7 per cent as it was boosted by a 78 per cent jump in home delivery sales, while click-and-collect sales jumped 53 per cent.

Shoppers bought fewer clothes during the period, with sales down by 26.7 per cent.

John Moore, senior investment manager at Brewin Dolphin, said: “The strong sales growth in Sainsbury’s’ results was to be expected – it largely mirrors what we have recently seen from other grocery retailers.

“A bit like Tesco last week, the bigger question is how much of this has been offset by additional costs, which are mentioned in [the] statement, but not quantified.

“The ‘buy at Argos and collect at Sainsbury’s’ strategy worked well during lockdown and this is likely to accelerate a review of the Argos property estate in time, which may deliver some cost savings and efficiencies.”

Julie Palmer, a partner at Begbies Traynor, said: “Simon Roberts may have only just gotten his feet under the table at Sainsbury’s, but the chief executive is facing the task of navigating the supermarket through the murky economic waters of Covid-19.

“Although grocery sales have spiked during the past few months, the increased costs retailers have had to absorb from disruptions to the supply chain and the implementation of social distancing measures have rocked the boat, with the business’s profitability taking a hit.

“However, Sainsbury’s remains in a stable position with the company’s acquisition of Argos improving its online offering, which has proven fruitful during lockdown, while the relief in business rates from the government has eased any immediate financial pressures.”