Sainsbury’s clothing sales slumped 26.7% year-on-year in the first quarter to 27 June but the retailer insists the division is recovering faster than expected as the nation gradually emerges from a government-imposed lockdown following the Covid-19 outbreak.
The supermarket chain says while clothing sales declined in the quarter, it has witnessed encouraging signs of recovery in the division during the latter half of the period, helped by Tu Online sales growth of 87% and “successful” clearance activity.
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It adds its stock position is “better than expected” and notes categories such as loungewear, exercise wear, nightwear and kidswear have all performed well during the quarter.
Overall, the grocer reported a 2.1% decline in total sales, including fuel, and total sales growth of 8.5% in the quarter, excluding fuel sales.
Newly appointed CEO Simon Roberts warns the coming weeks and months will continue to be challenging for customers and colleagues.
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“We do not expect the current strong sales growth to continue,” he asserts. “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.”
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By GlobalDataIn its trading statement, Sainsbury’s adds it believes 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.”
The results coincide with the departure of its CEO Mike Coupe after six years at the helm of the business. Roberts took the reins at the beginning of June.
Last week, Tesco Plc booked an 8.7% year-on-year sales increase at its UK stores but said clothing sales fell by one-fifth.
What can we make of the Q1 results?
Thomas Brereton, analyst at GlobalData, says while clothing and fuel sales fell, some positives can still be taken away from the results: “Sainsbury’s Q1 results are a pleasing read, with positives stemming largely from its ability to meet changing customer habits as a result of heavy digital investment over the past five years. Grocery sales grew 10.5%, buoyed by an 87% increase in online sales following a jump in orders fulfilled to 650,000 per week (over double that available in Q1 2019/20) as many shoppers took up home delivery in a bid to avoid physical stores. And while impaired demand across apparel (where sales fell 26.7%), fuel and banking negatively impacted total sales growth, these declines are broadly in line with rival Tesco, and Sainsbury’s will be pleased that these sectors are not displaying obvious problems that will persist outside of the immediate impact of Covid-19.”
Bank of America Global Research team had anticipated a 40.1% slide in clothing sales versus the actual fall of 26.7%, but analyst Xavier Le Mené says the group reported stronger than expected sales helped by its grocery division and a strong performance from Argos.
Meanwhile, Shore Capital analyst Clive Black says the numbers were a welcome surprise, particularly the sales contribution from Argos. But its clothing results were a “little behind expectation”.
“Less positive and a little behind our expectation was the performance of Sainsbury’s clothing label, Tu, where sales fell by 26.7%.
“With respect to the outlook, Sainsbury does not expect the recent run-rate of sales to continue, which is sensible and in-line with our own expectations albeit Q1 has seen revenue ahead of base case assumptions set out by the company at its FY2020 preliminary results. Sainsbury also notes high ongoing operating costs, so limited operational gearing to us, and still weak in-store clothing, fuel and general merchandise sales.
“We note the sensible and cautious guidance of management around the full-year potential out-turn, particularly around the UK consumer economy. Whilst this is so, with its notable nondiscretionary offer and strong digital capabilities, we feel Sainsbury, along with the other UK supermarkets, can be robust relative performers; i.e. defensive.”
