Sainsbury's has announced that it will ramp up investments in stores and in digital at the unveiling of its full year 2018/19 results. In the 52 weeks to 9 March 2019, underlying profits rose significantly and debt fell despite a 1.0% decline in H2 LFL sales.
Results in brief
- LFL sales (ex fuel) -0.2% (H1+ 0.6%, H2 -1.0%)
- Retail sales (ex fuel) +0.4% (Grocery +0.6%, General Merchandise 0.0%, Clothing -0.8%)
- Online +6.9%, Convenience +3.7%, Supermarkets +1%
- Underlying profit before tax +7.8% to £635m, driven by solid performance in food, a further £160m of Argos synergies and reduced interest costs
- Net debt reduced by £222m to £1.6bn
- Cost savings of £220m delivered through the year
- Statutory profit after tax -29% to £219m, pulled down by one-off changes to pensions legislation, retail restructuring charges, Sainsbury's Bank transition costs and Asda merger proposal costs
Focus on value added lines: Sainsbury's stepped up investments in premium food products and high growth categories allowing it offer better value in commodity lines. Examples include Free From, now worth £100m to Sainsbury's; 'Ripe & Ready' fresh produce (volumes +72% over five years) and 'Future Brands,' a portfolio of 126 innovative brands brought to market by building exclusive relationships with small suppliers. Going forward, Sainsbury's will focus more on adding value to its entry level private label range to restore its attractiveness relative to competitors' ranges.
Store investments: Trading intensity has increased at stores through regular range reviews, new and exclusive product introductions and Argos installations at Sainsbury's supermarkets. In the year ahead, Sainsbury's will upgrade over 400 supermarkets, for instance by rolling out ideas from its new Selly Oak test store, such as its more inspiring beauty departments, foodservice concepts and integrated non-food offer. Concession partners will also be a big part of Sainsbury's future as it looks to make stores more profitable.
Digital: Sainsbury's robust digital growth is being driven by a number of factors, including the expansion of same day delivery (to reach 57% of UK households) and the uptake of its groceries online app, while operating costs have been driven down by more efficient picking. Looking ahead, Sainsbury's will continue to prioritise digital as evidenced by this week's opening of its first mobile only convenience store and it will ramp up activities to create a single more integrated digital platform
General Merchandise: Argos shops have now been introduced to 281 Sainsbury's supermarkets, making better use of underused space and creating new reasons for shoppers to choose Sainsbury's, and helping to drive the 1% growth achieved by supermarkets. Despite this, the general merchandise market remains challenging, with Sainsbury's only achieving flat sales, while clothing sales were reduced by a decision not to hold a key promotional event and focus more on full price sales.
Investments prioritised for digital and stores
Commenting on the results Mike Coupe, Group CEO, said: “I am pleased to report that we have increased profits, reduced net debt and increased the dividend. This is testament to the hard work of colleagues across the business and I would like to thank them for their commitment during this year of change.
“We completed the integration of Argos that we set out in 2016, delivering £160 million in synergies ahead of schedule. We completed a major transformation of how we run Sainsbury’s stores and have made significant improvements to store standards in recent months, which remain a focus. Customers continue to rate us top for quality food and we are growing our premium ranges. We are also focused on reducing costs so that we can invest to make commodity products better value for our customers.
“We will increase and accelerate investment in the core business, investing to improve over 400 supermarkets this year. £4.7 billion of our revenue now comes from our online businesses and we are increasing investment in technology to make shopping across Sainsbury’s, Argos and Sainsbury’s Bank as quick and convenient as possible. We will also continue to strengthen our balance sheet and are making a new commitment to reduce net debt by at least £600 million over the next three years.
“I am confident in our strategy and also clear on what we need to do to continue to evolve the business in a highly competitive market where shopping habits continue to change.”
Further analysis will be available later this week in an updated Strategic Outlook for Sainsbury's presentation on Retail Analysis
IGD Sainsbury's Trade Briefing 2019
27 June, London
Hear from Group CEO, Mike Coupe and the Sainsbury's and Sainsbury's Argos leadership teams, who will provide a business and commercial update on "Destination Sainsbury's".
Find out more