TIDMSBRY
RNS Number : 6218R
Sainsbury(J) PLC
01 July 2020
1 July 2020
J Sainsbury plc
First Quarter Trading Statement for the 16 weeks to 27 June
2020
Strong grocery and Argos sales performance as we help to feed
the nation
-- Grocery sales up 10.5 per cent
-- General Merchandise sales up 7.2 per cent (including Argos
sales up 10.7 per cent) and Clothing sales down 26.7 per cent
-- Digital sales more than doubled
-- Total retail sales up 8.5 per cent (excl. fuel) with
like-for-like sales up 8.2 per cent (excl. fuel)
-- Profit impact of COVID-19 expected to be more than GBP500m,
broadly offset by business rates relief and stronger grocery sales,
as previously outlined
Q1 Trading Performance
The COVID-19 pandemic continues to have a significant impact on
our business and we are guided by three clear priorities: keeping
customers and colleagues safe; helping to feed the nation and
supporting our communities and the most vulnerable in society.
At our Preliminary results announcement in April, we set out our
base case assumptions for the current financial year and we are
pleased that our sales performance to date has been ahead of those
assumptions, helped by good weather. We delivered double digit
sales growth in Grocery, ahead of the market(1) , driven by very
strong online growth. This builds on strong grocery momentum and
market share gains over the last year, as we invest to lower our
prices and improve our stores.
Our digital performance has been particularly strong, with sales
more than doubling. Our ability to quickly respond to customers
choosing to buy groceries, general merchandise and clothing online
reflects the strength and flexibility of the digital and technology
platforms we have built. From the beginning of the crisis, we chose
to prioritise elderly, disabled and vulnerable customers for
groceries online; sales grew by 87 per cent year-on-year and orders
from around 370,000 to over 650,000 per week. Nearly 50 per cent of
new groceries online customers are new Sainsbury's customers.
SmartShop, which lets customers scan their own groceries and use a
separate checkout, reached 37 per cent of sales on average and
exceeded 50 per cent in some stores(2) . We have also rolled out
our one-hour grocery delivery service Chop Chop beyond London and
it is now in 15 cities.
While all 573 Argos standalone stores were closed for the
majority of the quarter, customers could shop with Argos online for
home delivery and click and collect from Sainsbury's stores. As a
result of this, Argos performed very well, growing 10.7 per cent,
with home delivery sales up 78 per cent and click and collect sales
up 53 per cent. Lockdown measures started to ease towards the end
of the quarter and we opened 174 stores across the UK and Ireland
in phase one and will open 100 more in phase two in July.
Clothing and Fuel sales, whilst still down year on year, have
started to recover more quickly than expected and our Financial
Services business has an improved capital position versus the year
end.
Simon Roberts, Chief Executive Officer, said: "The last four
months have been extraordinary in so many ways and our colleagues
have done an amazing job adapting our business. They have worked
tirelessly to keep everyone safe, to help feed the nation and to
support our communities and the most vulnerable in society.
"Our business has changed fundamentally from four months ago. We
have more than doubled our weekly sales of online groceries in
recent weeks, SmartShop now accounts for more than half of sales in
some supermarkets and Argos sales were strong while operating as an
online-only business for almost twelve weeks. Warm weather boosted
food sales and sales in seasonal categories in Argos, but sales of
clothing and fuel and trading in city centre Convenience stores
were all significantly down year on year as a result of
lockdown.
"We have worked really hard to listen and to respond to
customers throughout the crisis. We have lowered prices on many key
products as we continue to focus on lower regular prices. Our price
position versus our competitors has improved in the quarter,
Sainsbury's key customer feedback scores are at record levels and
we have gained market share.
"The coming weeks and months will continue to be challenging for
our customers and our colleagues and we do not expect the current
strong sales growth to continue. A number of the decisions we have
made have materially increased costs but meant that we have done
the right thing for our customers and set us up well for the
future.
" Our colleagues have been exceptional and I feel incredibly
proud of the job they have done day in day out and of their
flexibility and adaptability during this crisis."
Outlook
Sales growth has remained strong throughout the first quarter,
ahead of the base case assumptions we detailed in April,
particularly at Argos. This has been helped by good weather.
Operating costs remain high, reflecting the costs of keeping
customers and colleagues safe, significantly higher online
participation, including prioritisation of elderly, disabled and
vulnerable customers, and weak sales of fuel, clothing and general
merchandise within Sainsbury's stores.
We believe it is appropriate to remain cautious about the sales
trajectory through the remainder of the year given the weather
benefit to date and a likely further weakening of consumer
spending. It remains impossible to predict the full nature, extent
and duration of the impact of COVID-19 on sales and costs. Our base
case scenario continues to underpin an expectation of broadly
unchanged Group underlying profit before tax for the full year.
Like-for-like sales growth 2019/20 2020/21
----------------------------- -------------------------------------------
Q1 Q2 Q3 Q4 Q1 (3)
--------- --------- ------- ------------ --------
Like-for-like sales (exc.
fuel) (1.6)% (0.2)% (0.7)% 1.3% 8.2%
--------- --------- ------- ------------ --------
Like-for-like sales (inc.
fuel) (1.0)% (0.4)% (1.1)% 1.3% (2.3)%
--------- --------- ------- ------------ --------
2019/20 2020/21
Total sales growth Q1 Q2 Q3 Q4 Q1
----------------------------- --------- --------- ------- ------------ --------
Grocery (0.5)% 0.6% 0.4% 2.0% 10.5%
--------- --------- ------- ------------ --------
General Merchandise (3.1)% (2.0)% (3.9)% (1.3)% 7.2%
--------- --------- ------- ------------ --------
Clothing (4.5)% 3.3% 4.4% 2.5% (26.7)%
--------- --------- ------- ------------ --------
Total Retail (excl. fuel) (1.2)% 0.1% (0.7)% 1.3% 8.5%
--------- --------- ------- ------------ --------
Total Retail (inc. fuel) (0.6)% 0.1% (0.9)% 1.9% (2.1)%
--------- --------- ------- ------------ --------
Q1 2020/21 previously Q1 2020/21 Q1 2020/21
reported Total
7 weeks to 25 9 weeks to 27 16 weeks to
Total sales growth % April June 27 June
-------------------------------------- -------------- ------------
Grocery 12% 10% 10.5%
Total General Merchandise 3% 12% 7.2%
GM (Argos) 9% 14% 10.7%
GM (Sainsbury's Supermarkets) (22%) 2% (9.3)%
Clothing (53%) (10%) (26.7)%
Total Retail excl. fuel 8% 9% 8.5%
Fuel (52%) (60%) (56.1%)
-------------------------------------- -------------- ------------
Keeping our customers and colleagues safe
Our highest priority throughout the quarter has been to keep our
customers and colleagues safe. We have made changes to all aspects
of our business to achieve this, adding material costs. This
includes:
- Providing full pay for extremely vulnerable colleagues until
at least 31 July and full pay for vulnerable colleagues and those
living with extremely vulnerable family members until 30 June
- Giving a thank you payment to 157,000 colleagues and front
line managers, equivalent to 10 per cent of pay, for the four week
period from 8 March
- Recruiting more than 25,000 colleagues to work in stores, as
drivers and in distribution centres
- Initially restricting the number of products customers could
buy in a single shop so that essential items were available to a
larger number of customers and introducing priority shopping hours
for NHS workers and elderly, disabled and vulnerable customers
- Temporarily suspending Argos two man delivery and changing
operational processes such as Groceries Online deliveries
- Installing over 40,000 Perspex screens in Sainsbury's and
Argos stores to support hygiene and social distancing
- Closing our counters and cafes to focus resource on stocking
and selling essential items and reducing opening hours and
temporarily closing some stores to safely and effectively serve
customers
- Limiting the number of customers allowed into shops at any one
time to ensure social distancing and operating one-way systems in
smaller stores
- Investing in TV, radio and print advertising to further
support in-store social distancing measures
Supporting our communities and the most vulnerable in
society
In these challenging circumstances, we have focused on ensuring
that the most vulnerable in our communities can access food and
other essential items. Highlights include:
- We have made almost four million grocery deliveries to more
than 500,000 elderly, disabled and vulnerable customers since the
start of the crisis
- Together with Sainsbury's, Argos, Habitat and Nectar
customers, we donated GBP4.1m towards vital emergency support for
vulnerable people in the UK through our partnership with Comic
Relief and Children in Need
- Donating GBP3m to Fareshare to source food to help over 5,000
frontline charities and community groups in England
- Accelerating supplier payments. We are working collaboratively
with suppliers to support them with vital cash flow where needed,
including immediate payment to at least 1,500 smaller suppliers
- Deciding not to take up the government's offer of furlough payments or delaying VAT payment
- Donating 750,000 brand new items for men, women and children
from our Tu clothing range towards local communities and charities
via Comic Relief and our existing charity network
- Extending our partnership with WH Smith to 80 stores in NHS
hospitals, which enables NHS workers to receive a 20 per cent
discount on everything they buy, making it easier for them to shop
for Sainsbury's groceries
- Introducing school meal vouchers and Volunteer Shopping Cards,
enabling others to shop on behalf of elderly, disabled and
vulnerable customers who can't shop for themselves
- Selling The Big Issue in stores and online, providing
temporary support to vendors who are currently unable to sell on
the street
Helping to feed the nation
Grocery
- Grocery sales grew by 10.5 per cent, continuing to outperform
the market(4) as customers switched to Sainsbury's
- We lowered the prices of many key products in the quarter,
improving our value relative to competitors
- Customer satisfaction scores improved significantly year on
year, leading the main grocers on social distancing scores, which
is currently a very important measure for customers
- We invested significantly in our digital offer, with Groceries
Online sales up 87 per cent year-on-year and over 650,000 orders
per week, up 75 per cent since the start of the pandemic.
Click&Collect is proving particularly popular with customers,
with sales up 13-fold compared to last year
- SmartShop participation reached 37 per cent of sales on average and exceeded 50 per cent in top-performing stores(5)
- We have rolled out Chop Chop, our 1-hour delivery service, to
41 stores, increasing our presence from one city to 15 cities
- Convenience sales were down 5 per cent, driven by very weak
sales in city centre locations where trade is heavily driven by
office workers and by the temporary closure of 26 convenience
stores in city centre locations, partially offset by very strong
sales growth in neighbourhood locations
- We have closed our fresh food counters and cafes in our
supermarkets so that colleagues can focus on keeping essential food
items on shelves. We are beginning to re-open some pizza counters
where there is significant customer demand and no equivalent
currently available in the aisle
General Merchandise
- All 573 Argos standalone stores in the UK and Republic of
Ireland were closed from 24 March in line with government guidance
around non-essential retail. Home delivery sales grew by 78 per
cent and Click and Collect sales grew by 53 per cent during the
quarter, driving total Argos sales growth of 10.7 per cent,
demonstrating the strength of our digital capabilities
- Customers were able to collect orders in 307 Argos stores in
Sainsbury's, 173 collection points in Sainsbury's supermarkets (of
which 79 were opened during the quarter) and 186 collection points
in Sainsbury's Local stores
- Favourable weather helped to drive very strong seasonal sales
in categories such as garden and outdoor toys and we were also able
to respond to very high customer demand in categories such as
personal computers, home office furniture, gaming, entertainment,
home baking and arts and crafts
- We started to re-open Argos stores in line with individual
government guidance. We currently have a total of 174 standalone
Argos stores open across UK and Ireland, with 100 more opening in
July
- In England and Wales, we are re-opening stores on a collection
and returns only basis, in areas where customers can not currently
easily access an Argos store in a Sainsbury's supermarket
- While General Merchandise sales in Sainsbury's stores
declined, the trend improved through the quarter, reflecting strong
seasonal demand and some normalisation of customer behaviour in
stores
Clothing
- Clothing sales declined in the quarter but have shown
encouraging signs of recovery during the latter half of the
quarter, helped by Tu Online sales growth of 87 per cent and
successful clearance activity. Our stock position is better than
anticipated
- Categories such as loungewear, exercise wear, nightwear and
kidswear have all performed well during the quarter
Financial Services
Our Financial Services outlook is in line with the base case
scenario we outlined with our Preliminary Results statement:
- Our capital surplus over the regulatory minimum has increased
during the quarter. At the end of May, including regulatory
buffers, the Bank had around GBP335m of surplus capital, up from
around GBP320m at year end. This reflects a decrease in our lending
balances, more than offsetting the GBP30m COVID-19-related
impairment provision increase required under IFRS9
- Liquidity has further strengthened since financial year end,
with the bank holding GBP665m additional liquidity above the
regulatory minimum, up GBP491m due to a strong savings performance
and lower lending
- Travel Money bureaux remain closed and ATM transaction
volumes, while starting to recover, remain below pre-COVID-19
levels
- Lower credit demand, along with prudent credit policy
tightening actions and a focus on supporting Sainsbury's customers,
has driven a GBP455m (eight per cent) reduction in unsecured
portfolios. Credit card spending has also reduced, although there
are early signs of recovery
- Trading in Argos has been strong, with our store card activity
supporting sales. Over 80 per cent of credit being extended on
store cards is to existing customers
- A focus on cost reduction, together with lower transactional
volumes, has reduced Q1 costs by 14 per cent year on year. We have
reviewed investment spend for 20/21 and will reduce this by one
third
- Emergency Payment Freezes are being extended to customers in
need. The percentage of customers requesting the use of these
facilities is materially lower than market average
Liquidity
- Our cash position is strong and we have chosen to fully repay
the GBP500 million we prudently borrowed under the Revolving Credit
Facility earlier in the year
Investor Relations Enquiries Media Enquiries
James Collins +44 (0) 7801 813 074 Rebecca Reilly +44 (0) 20 7695 7295
1,4 Kantar: Sainsbury's Till Roll Volume growth ahead of Total
Market and the rest of the Big 4 on a 4 week, 12 week and 52 week
basis to 14 June 2020
2,5 In handset stores
3 Temporarily closed Argos standalone stores, Sainsbury's
convenience stores, cafés and fuel kiosks have been treated as
like-for-like sales. Only permanently closed sites have been
treated as non-like-for-like. Excluding temporarily closed
Sainsbury's convenience stores, cafés and fuel kiosks from
like-for-like sales would improve Q1 like-for-like sales growth
(excl. Fuel) by 80bps to 9.0%.The additional exclusion of
temporarily closed Argos standalone stores would improve Q1
like-for-like sales growth (excl. Fuel) to 18.5%.
Notes
A. All sales figures contained in this trading statement are
stated including VAT from 2018/19 and in accordance with IFRS
15
B. Certain statements made in this announcement are
forward-looking statements. Such statements are based on current
expectations and are subject to a number of risks and uncertainties
that could cause actual events or results to differ materially from
any expected future events or results referred to in these
forward-looking statements. Unless otherwise required by applicable
law, regulation or accounting standard, we do not undertake any
obligation to update or revise any forward-looking statements,
whether as a result of new information, future developments or
otherwise
C. A conference call will take place at 08:20. To listen to the
audio webcast we recommend that you register in advance. To do so,
please visit https://www.about.sainsburys.co.uk/investors prior to
the event and follow the on-screen instructions. To view the
transcript of the conference call go to
https://www.about.sainsburys.co.uk/investors and follow the
on-screen instructions in the results, reports and presentations
section
D. Sainsbury's will announce its Interim Results for 2020/21 on
5 November 2020
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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