British supermarket chain Sainsbury’s raised its full-year profit forecast on Wednesday after posting a better than expected quarterly performance, raising hopes that the battered sector could be hitting the bottom and sending its shares soaring.
Sainsbury's, which has shown greater resilience to the rise of German discounters Aldi and Lidl than its big four rivals, said its sales were still down in the 16 weeks to September 26th but not as much as feared.
That put the group on course to beat its forecast for 2015-16 underlying profit before tax and sent its shares up 11 per cent. The bullish news, following nearly two years of caution, also boosted the shares of rivals Tesco and Morrisons.
Asda, the final member of the big four supermarkets, is owned by Wal-Mart.
"During the quarter we saw an improvement in our key trading metrics. Both volume and transactions grew as the decline in average basket spend in supermarkets continued to stabilise," said chief executive Mike Coupe.
“Whilst the market is clearly still challenging, with food deflation impacting many categories, we are making good progress on delivering our strategy.”
The grocer said on Wednesday it now expected its 2015-16 underlying profit before tax to be moderately ahead of the published consensus of £548 million if current market trends continue. That would be down from £681 million made in the 2014-15 year.
However, its sales at stores open over a year still fell 1.1 per cent, excluding fuel, in its seventh straight quarterly decline, hurt by fierce competition with rivals that has contributed to ongoing price deflation.
That compared with analysts’ average forecast of a decline of 1.3 per cent and a fall of 2.1 per cent in the previous quarter.
“The results represents a change of tone for Sainsbury’s,” Bernstein analysts said in a note.
“It has tried to take a cautious message up to now, that it will go “toe to toe” with whatever price investment anyone else makes. That it is talking up guidance is now showing they are more confident in their strategic position.”
Sainsbury’s, in common with its major rivals, is battling to stem the flow of shoppers to the discounters through price cuts and improvements to product quality and service, financed by cost savings and dividend reductions.
Earlier this month Morrisons posted a 2.4 per cent fall in second quarter like-for-like sales, while in August Asda reported a 4.7 per cent slump in underlying sales for its first quarter. Tesco will update on its second quarter on October 7th.
Reuters
