By James Davey
LONDON (Reuters) – British supermarket group Sainsbury’s raised its full-year profit forecast by at least 9% after grocery sales over the Christmas quarter beat its expectations, even though they fell short of its stellar 2020 festive performance.
Sainsbury’s said on Wednesday the upgrade reflected cost savings and stronger-than-expected grocery volumes, driven in part by increased in-home food consumption, which offset investment spending and higher operating cost inflation.
The group’s Argos general merchandise business also continued to benefit from stronger margins supported by cost savings, while profit expectations in Sainsbury’s financial services business exceeded analysts’ consensus with bad debts lower than expected and lending volumes starting to recover.
UK supermarkets faced tough comparisons against Christmas 2020 when a lockdown meant food and drink sales boomed.
While restrictions for Christmas 2021 were less severe, supermarkets still benefited from consumer nervousness over the spread of the Omicron variant which kept them away from bars and restaurants.
Sainsbury’s, Britain’s No. 2 supermarket group, is now forecasting a full-year 2021-22 underlying profit before tax of “at least” 720 million pounds ($981.5 million) compared with previous guidance of “at least” 660 million pounds and 356 million pounds made in 2020-21.
Sainsbury’s shares were up 1.6% at 1000 GMT, extending year-on-year gains to 21% that have been partly buoyed by bid speculation.
Shares in market leader Tesco were up 0.3% on hopes it will also upgrade its profit outlook when it updates on Thursday.
Sainsbury’s said like-for-like sales, excluding fuel, fell 4.5% year-on-year in its third quarter to Jan. 8, having fallen 1.4% in the second quarter.
While grocery sales fell 1.1% in the third quarter year-on-year they were up 6.6% against the same period in 2019-20, before the pandemic impacted trading.
“I am really pleased with how we delivered for customers this Christmas. More people ate at home and our significant investment in value, innovation and service led to market share growth,” said CEO Simon Roberts.
Sainsbury’s said general merchandise sales fell 16% year-on-year, reflecting a strong performance last year, limited availability in key product areas and a focus on profitable sales. Clothing sales fell 2.7%.
Roberts said that with Britain facing a cost of living squeeze this year, Sainsbury’s was focused on providing the best value it could.
“Delivering great value for customers is at the heart of our strategy and we’ve sharpened our price positioning against our key competitors,” he said.
($1 = 0.7336 pounds)
(Reporting by James Davey; Editing by Kate Holton and Tomasz Janowski)