Sainsbury’s has upgraded its profit expectations by £60m after surging sales of champagne, steaks and other luxury food drove stronger than expected sales over Christmas and new year.
The UK’s second largest supermarket reported that like-for-like sales jumped by a stronger-than-expected 9.3% year-on-year during its Christmas period, from 1 November through to 2 January.
Supermarkets have been one of the main beneficiaries of consumer spending during the coronavirus pandemic, as locked-down shoppers spent extra money on groceries that they would usually have spent in pubs, restaurants and cafes.
The Bradford-based supermarket Morrisons on Tuesday reported a big sales increase, while the retail analysts Kantar said December was a record month for UK supermarkets. Despite soaring revenues, profits have been held back by significant extra costs involved in delivering social distancing measures and covering for self-isolating staff.
Supermarkets have also expanded home delivery as online sales have boomed. Sainsbury’s said its online grocery sales had increased by 128% year-on-year in the 15 weeks to 2 January to make up 18% of sales over the Christmas period compared with about 7% a year ago. Sainsbury’s delivered 1.1m orders in the 10 days to Christmas, double the number of last year.
Sainsbury’s raised its profit guidance, saying it now expected to make an underlying profit before tax of at least £330m in the financial year to March 2021 compared with £270m previously expected. It was the biggest riser on the FTSE 100 on Thursday, with shares gaining more than 4% in morning trading.
Despite the upgrade, Sainsbury’s profits will be down 44% year-on-year because of higher costs and after the supermarket belatedly pledged to pay back £410m in business rates relief given by the government at the start of the pandemic.
The relief had been given on the expectation that supermarkets and other retailers would struggle, but essential shops that remained open instead reported sales increase. Sainsbury’s, B&M and a host of other retailers only pledged to pay back the relief after a public outcry.
Sainsbury’s said premium champagne sales rose by 52%, while party food under its “Taste the Difference” premium food brand increased by 11%. Mincemeat sales soared 24% as Britons turned to home baking to cope with lockdown boredom. Sales of turkey were down as more families bought alternatives such as lamb or beef to cater to smaller gatherings under government restrictions.
The supermarket also reported a record number of steaks sold in the run-up to New Year’s Eve, as UK shoppers were mostly confined to their homes.
Sales of general merchandise rose 6%, thanks to a strong performance in Argos outlets which has kept stores partially open to enable shoppers to pick up online orders. Even clothing sales rose – by 0.4% – despite widespread difficulties in the market as events were cancelled and many worked from home.
Simon Roberts, Sainsbury’s chief executive, said the company was “dealing with a lot of change and uncertainty again” during England’s third national lockdown, when he said staff absences were likely to rise above about 8% at present.
He said the government “frontline workers”, such as supermarket staff and teachers, should be among those prioritised for vaccination. “Priority should be given to those that need it first. Those on the frontline should be part of that when and if capability is available,” he said.
Roberts said that the end of Brexit transition had not led to problems with the flow of goods from Europe so far but there had been some problems in sending goods to Northern Ireland, where the group has had to supplement its own products with locally-sourced Spar items. He said the group was “working through administrative change”.
Roberts cautioned that the flow of imports from Europe was low at present and would not be back up to normal levels until the third week of January, suggesting that any issues with new paperwork on imports from the EU might emerge then.
Dr Clive Black, an analyst at Shore Capital, said it was “a quite fabulous trading update from Sainsbury’s. It is really is some decades since we have been able to make that statement.”
He said not only sales were better than expected but also gross profit margins on general merchandise and clothing.