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01 July 2020

Sainsbury’s Soars

Ben Staniforth, Investment Analyst, Redmayne Bentley

In-line with its rivals, Sainsbury’s has seen strong performance in recent months, boosted by consumer stockpiling due to the Covid-19 pandemic. First-quarter trading results published on 1st July continue to show positive progress overall, albeit with mixed success across departments.  

Q1 like-for-like sales were up 8%, helped by strong performances from General Merchandise and Grocery. The firm has also bolstered its online delivery offering, with digital sales more than doubling during the period. Furthermore, Sainsbury’s has demonstrated an ability to attract entirely new customers to its offering, making up around 50% of online orders thus far during the pandemic. If handled well, this could help to foster long-term relationships with new and existing customers, at the expense of the market share of its rivals. However, as lockdown measures are eased and physical stores start to normalise their hours, investors should be careful to not assume that retention rates will remain at these levels. In a market saturated by better value and a more streamlined offering, discount operators such as Lidl and Aldi are likely to claw back footfall in any recessionary environment.

Argos, which the firm bought in 2016, has also performed well, helping to lift the group’s performance. Sales were up 10.7% despite having to close most of its stores to the public, as its strong online offering provided the group with a diversified sales base.

However, performance was not strong all round. Sales of Fuel and Clothing, two large parts of the business, struggled significantly as consumers travelled less frequently and were encouraged to shop online. Rising costs attributed to Covid-19 are also expected to impact profit in the region of £500m as the firm implements social distancing measures and provides PPE to its staff. As such, investors need to keep in mind the long-term impact to profit Covid-19 will have, while the benefits of stockpiling and good weather are likely to only provide a short/medium term boost to sales.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
 
Sainsbury’s Soars
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