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April 28, 2022

Sainsbury’s clothing division hits GBP1bn sales milestone

UK supermarket chain Sainsbury’s is celebrating a solid finish to the year with a sharp boost in profits helped by its successful clothing business.

By Hannah Abdulla

Sainsbury’s Tu clothing division has hit a GBP1bn (US$1.25bn) milestone, after full-year sales grew more than 3.1% versus the same period two years ago, and 12.7% against last year.

For the 52 week period ending 5 March, Sainsbury’s saw total sales grow (exc fuel) by 4.6% on a two-year comparison but fall on a year-over-year basis (exc fuel) by 2.6%.

It reported an underlying profit before tax of GBP730m up 25% versus FY 2019/20 and up 104% versus FY 2020/21, which included substantial Covid costs. This reflected elevated grocery sales at Sainsbury’s and lower finance charges, with significant investment in core grocery funded by cost savings, fuel and a more profitable general merchandise and clothing business.

Clothing recovered strongly from a year of suppressed demand with growth driven by full-price sales and increased in-store sales.

In its commentary, Sainsbury’s said it is selling more clothing at full price – with full-priced sales participation now at 89% compared with 65% two years ago – and running fewer promotions, which improves profitability and supports increased investment in its core food business.

Tu Clothing, it said, is now a GBP1bn brand with sales growth of 3.1% versus FY 2019/20, underpinned by good online sales, up 49%.

Outlook

“We start this year in a good position financially, with continued operating momentum and sharp execution supporting our strong competitive position. The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers’ disposable incomes,” Sainsbury’s said in its statement.

“In that context, we are determined to continue our consistent improvement in grocery value, innovation and customer service, funded by our comprehensive cost savings programme and we expect to continue our strong grocery volume market share performance.

“At this early stage of the financial year, we expect underlying profit before tax will be between GBP630m and GBP690m in FY 2022/23. This is below the GBP730m reported in FY 2021/22, a year which benefited by an estimated GBP100m from elevated Covid driven grocery volumes, but significantly ahead of the GBP586m reported in FY 2019/20.

“We continue to expect to generate retail free cash flow of at least GBP500m in FY 2022/23. Together with our strong balance sheet, this is reflected in our commitment to return a higher proportion of underlying profits to shareholders, initially through an increased payout ratio.”

Analyst reaction

Clive Black of ShoreCap noted the good performance of the Tu Clothing brand which has led to the division hitting the GBP1bn mark for the first time. “Times are tougher,” he says and so he is unsurprised the retailer’s outlook is more cautious.

“We have adopted a cautious approach but an underlying FY22 CPTP base of c630m for FY23 would still represent a sound outcome to us,” he adds.

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