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Must read: Sainsbury's Q1 results, UK inflation

Our head of investment rounds up the morning's big news.

2nd July 2024 08:37

by Victoria Scholar from interactive investor

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      SAINSBURY’S

      Sainsbury (J) (LSE:SBRY) reported a 3% increase in first-quarter underlying sales with impressive strength in grocery sales, rising by 4.8%.

      However, this was offset by weakness in non-food sales – general merchandise and clothing revenue declined by 4.3% and Argos sales slumped by 6.2%, hurt by pressures from the cost-of-living headwinds, higher interest rates and a dismal British summer that dampens demand for seasonal products.

      Argos is struggling with the backdrop of weak demand given that its offering isn’t a priority for cash strapped consumers at this time. Sainsbury’s CEO even said that UK consumers remain cautious when it comes to discretionary spending. Garden and home are also struggling amid the disappointingly wet weather and in the era post the pandemic DIY boom. However, TV sales were a bright spot for Argos thanks to football fans preparing to view the Euros at home. 

      Sainsbury’s has been struggling to differentiate itself from rivals, with stiff competition on price from the German discounters Aldi and Lidl, while its premium ranges fall short of those on offer at Waitrose and Marks & Spencer Group (LSE:MKS).

      Nonetheless, Sainsbury’s continues to make headway in growing its market share versus rivals, with potential for further growth as inflation pressures subside, a boost from the summer sun that has only recently appeared, and the excitement around the Euros.

      The company was able to keep its full-year guidance unchanged for underlying operating profit of £1.01 billion and £1.06 billion, representing growth of between 5% and 10%. 

      Investors have had a tough time with the stock, which is down around 16% so far this year, compared to Tesco (LSE:TSCO) up over 4%. And they have failed to get enthused by the supermarket’s mixed performance today, with the stock shedding around 3%. 

      BRC SHOP PRICE INFLATION 

      According to the British Retail Consortium, shop price inflation in Britain slowed to 0.2% in June versus 0.6% in May, hitting the lowest level since October 2021. Non-food items fell by 1% in June year-on-year accelerating from a drop of 0.8% in May and food inflation dropped for the 14th consecutive month to 2.5%. 

      Today’s figures are a win for Rishi Sunak’s government as well as the Bank of England, with inflation now much closer to the central bank’s 2% target. Inflation has fallen sharply from the more than 40-year highs seen in October 2022. 

      This data could potentially increase the chances that the Bank of England will start cutting interest rates in August, with markets currently implying that it is more likely than not that the central bank will begin loosening monetary policy next month. This could provide a boost to markets as well as consumer and business confidence. It could also potentially increase demand for borrowing and provide some reassurance that the inflationary crisis of recent years has officially turned a major corner. 

      These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

      Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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