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Sainsbury’s sales drop as boss warns UK cost of living will ‘only intensify’

A member of staff works at a Sainsbury's supermarket, amid the spread of the coronavirus disease (COVID-19), in London, Britain January 11, 2021. REUTERS/Hannah McKay
Sainsbury's said it still expected underlying pre-tax profit for the year to be between £630m and £690m. Photo: Hannah McKay/Reuters (Hannah Mckay / reuters)

Sainsbury's (SBRY.L) has reported a fall in sales as shoppers cut back on spending amid intensifying "pressure on household budgets".

Sainsbury's chief executive Simon Roberts said the chain was "doing everything we can to keep prices low".

“We really understand how hard it is for millions of households right now and that’s why we are investing £500m and doing everything we can to keep our prices low, especially on the products customers buy most often,” he said.

“The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda.”

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Read more: UK disposable income fall 3% as price rises force more to borrow to pay bills

The group said that same-store sales, excluding fuel, were down 4% in the 16 weeks to June 25 compared with the same period a year ago. Grocery sales fell 2.4% in the period, partly reflecting strong comparative figures from last year when the hospitality industry was largely closed due to lockdowns.

Shares were up in early morning trading despite the drop in sales.

Roberts said some shoppers are switching from brand-name products to Sainsbury's cheaper own-brand alternatives.

Last month, a BBC-commissioned survey suggested that people were cutting back on food, fuel and clothes as prices rise.

“We’re working hard to reduce costs right across the business so that we can keep investing in these areas that customers care most about,” Roberts added.

“The progress we are making on improving value, quality, innovation and service is reflected in our improved grocery volume market share.”

The retailer said its “improved value position” has helped its performance against competitors, with the group investing heavily into improving prices, such as through its Sainsbury’s Quality, Aldi Price Match campaign.

The company also revealed that fuel sales jumped 48.5% over the period, driven by increases in the price of petrol and diesel.

Read more: UK shop prices jump at the fastest pace in almost 14 years

Sales at Argos, which the supermarket group acquired in 2016, were down 10.5% year on year in the 16 weeks to June 25. That followed a 20% decline in the final quarter of the previous financial year.

Sainsbury's said it still expected its underlying pretax profit for the year to be between £630m and £690m.

Richard Hunter, head of markets at Interactive Investor, said: "Although the company is maintaining guidance for full-year underlying pre-tax profit to come in between £630m and £690m, this would represent a decline from the previous year’s number of £730m, underlining the pressure on sales despite the group’s other strategic measures.

"Despite something of a relief bounce in opening exchanges, the share price has reflected the company’s current travails, having dropped by 23% over the last year, as compared to a marginal gain of 1% for the wider FTSE 100. Competition in the sector remains intense, ranging from a resurgent Tesco to the price discounters Aldi and Lidl."

Matt Britzman, equity analyst at Hargreaves Lansdown, added: “Jubilee celebrations might have provided a temporary distraction for consumers who indulged in Pimms, Prosecco and strawberries, but we’re very much back to reality now.

"It doesn’t come as much of a surprise that management are warning of a consumer that’s watching every penny as the cost-of-living crisis takes its toll, and the group’s expecting that pain to only get. It’s positive then to see guidance remain intact, though it’s worth remembering it’s been raised and lowered already this year."

Watch: Worst 'yet to come' for food price rises that could last over a year – Ex-Sainsbury's CEO