Sainsbury HY Earnings Beat Estimates Despite Inflationary Pressures

By Scott Kanowsky 

Investing.com -- Shares in J Sainsbury PLC (LON: SBRY ) rallied on Thursday after the British supermarket group delivered better-than-expected first half results and backed its annual guidance.

Britain's second biggest grocery chain posted underlying profit before tax in the half of £340M, a drop of 8% compared to the same period in its 2021/22 financial year. But this was still ahead of analysts' estimates.

Statutory pre-tax earnings came in at £376M, down by 29%, reflecting higher exceptional income in the prior year from the settlement of legal disputes.

Sainsbury's Argos business helped boost overall performance, with sales at the unit growing by 1.6% annually in the second quarter - its first increase in more than a year. As a retailer of discretionary items like homewares and toys, Argos is seen as having more exposure to customers reining in spending due to rising prices.

Sainsbury added that it will now close fewer standalone Argos stores than it previously thought by March 2024, crediting the change to progress in rent negotiations.

Revenue from groceries at Sainsbury expanded marginally by 0.2% in the half, thanks to strong growth in the second quarter that offset a slide in the prior three-month timeframe.

"[L]ockdown comparatives eased, market price inflation accelerated, customers responded well to the strength of our offer and we benefited from warm weather [in the second quarter]," Sainsbury said.

Looking ahead, the company confirmed its 2022/2023 financial outlook, with underlying pre-tax profit seen at between £630M - £690M and retail free cash flow of at least £500M.

Meanwhile, trading momentum was "strong" in the opening weeks of the second half despite ongoing concerns over elevated prices, particularly for food, in the U.K.

Sainsbury has also made gains on volume market share, which chief executive officer Simon Roberts told reporters was due to customers getting their Christmas shopping done early in a bid to "spread out" holiday season expenses.

"We are well placed through the peak trading period and into next financial year to support customers as they manage further cost of living pressures," Sainsbury said in a statement.

Inflation in the U.K. stands at a 40-year high of 10.1%, while consumer confidence has waned to its lowest point ever.

The gloomy economic picture has weighed on Sainsbury's biggest rival Tesco PLC (LON: TSCO ), which slashed its full-year guidance in October. Analysts at Jefferies said they had expected Sainsbury to unveil a "conservative change" to its outlook as well, but said its earnings were "more resilient than feared."