Supermarket chain J Sainsbury on Tuesday reported a slip in first quarter sales as it acknowledged a tough backdrop, believing pressures from the cost of living crisis will ‘only intensify’ over the remainder of the year.
Sainsbury’s said grocery sales in the first quarter ended June 25 fell 2.4% yearly ‘against last year’s elevated Covid-19 driven levels’. On three years earlier, prior to the onset of the pandemic, grocery sales were 8.7% higher.
Total retail sales, excluding fuel, were down 4.5% yearly. Including fuel, they were down 4.0%.
Consumers in the UK have come under pressure from an inflation-driven cost of living crisis.
Sainsbury’s Chief Executive Simon Roberts said the company is doing all it can to keep prices on shelves as low as possible.
‘We really understand how hard it is for millions of households right now and that’s why we are investing £500 million and doing everything we can to keep our prices low, especially on the products customers buy most often. 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. The progress we are making on improving value, quality, innovation and service is reflected in our improved grocery volume market share,’ Roberts 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.’
Sainsbury’s backed its profit outlook. It continues to expect an annual underlying pretax profit between £630 million and £690 million. It had reported underlying pretax profit of £730 million in financial 2022, so it expects a decline of as much as 14%.
Shares in Sainsbury’s were up 1.9% in early dealings in London.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.3% at 21,920.27
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Hang Seng: up 0.4% at 21,920.27
Nikkei 225: closed up 1.0% at 26,423.47
S&P/ASX 200: closed up 0.3% at 6,629.30
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US financial markets were closed on Monday for Independence Day holiday
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EUR: firm at $1.0436 ($1.0430)
GBP: flat at $1.2115 ($1.2114)
USD: up at JP¥136.24 (JP¥135.72)
Gold: up at $1,809.30 per ounce ($1,808.30)
Oil (Brent): down at $112.97 a barrel ($113.66)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Tuesday’s key economic events still to come
10:00 CEST EU eurozone Services PMI
11:00 CEST EU quarterly balance of payments
09:55 CEST Germany services PMI
09:30 BST UK services PMI
10:30 BST UK BoE financial stability report
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The Reserve Bank of Australia raised its cash rate target by 50 percentage points to 1.35% from 0.85%. ‘Inflation is forecast to peak later this year and then decline back towards the 2–3% range next year,’ Governor Philip Lowe said. ‘Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.’
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The service sector in China rebounded strongly in June, according to Caixin general services purchasing managers’ index. The seasonally adjusted headline business activity index came in at 54.5 points for the month, overshooting expectations of 47.3 as cited on FXStreet. The index had a reading of 41.4 in May, when services activity had contracted. Having crossed back over the 50 point no-change threshold, the data shows the sector has returned to growth. ‘Regional Covid outbreaks were brought under control, which contributed to the services sector’s recovery. Supply and demand in the services sector expanded. With the easing of Covid restrictions, services operations started to return to normal,’ said Wang Zhe, senior economist at Caixin Insight Group. Price inflation remained fairly stable in the month. Cost pressures from high raw material and freight costs caused some surveyed firms to cut staff.
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Top officials from the US and China held a ‘candid’ video call on Tuesday to discuss global economic challenges, especially regarding supply chains. The exchange between Chinese Vice Premier Liu He and US Treasury Secretary Janet Yellen came as President Joe Biden considers lifting some tariffs on imports from China to try and ease soaring inflation. The world’s two biggest economies are also grappling with Covid-snarled supply chains and rising global energy prices. ‘The two sides agree that as the world economy is facing severe challenges, it is of great significance to strengthen macro-policy communication and coordination between China and the US,’ China’s official Xinhua news agency reported. The Xinhua report said the video call took place at the request of the US, and described the conversation as ‘constructive’.
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BROKER RATING CHANGES
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Stifel starts Diageo with ’buy’ - price target 4,530 pence
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Liberum raises Moneysupermarket.com to ’buy’ (’hold’)
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RBC raises Dechra Pharma to ’outperform’ (sector perform) - price target 4,200 (5,300) pence
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COMPANIES - FTSE 100
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AstraZeneca said it has struck a deal to acquire TeneoTwo, the developer of the TNB-486 clinical stage T-cell candidate to treat relapsed and refractory B-cell non-Hodgkin lymphoma. Hodgkin lymphoma is a cancer that begins in the lymphatic system. Relapsed cancer is when the disease has reoccurred, while refractory means it has been resistant to treatment. Astra will pay $100 million upfront, make additional contingent R&D-related milestone payments of up to $805 million, plus extra contingent commercial-related milestone payments of up to $360 million to TeneoTwo’s shareholders. It means the deal could be worth up to $1.27 billion. ‘The transaction is expected to close in the third quarter of 2022, subject to customary closing conditions and regulatory clearances. The transaction does not impact AstraZeneca’s financial guidance for 2022,’ the company said.
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B&M European named a new CFO. The value retailer has picked Mike Schmidt as its new finance chief, a role he currently holds at DFS Furniture. Schmidt has been at the sofa seller for eight years, the last three of which as CFO. A start date for Schmidt at B&M is to be confirmed, though it is expected to be no later than January 3. Schmidt succeeds Alex Russo, who will be stepping up to chief executive officer to replace Simon Arora. DFS said Schmidt will stick around to oversee its year-end results and ensure an ‘orderly transition’. In addition, DFS lifted its outlook. It now expects underlying pretax profit before brand amortisation at the upper half of a £57 million to £62 million guidance range.
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COMPANIES - SMALL CAP
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Young & Co’s Brewery said it has made a decent start to its new financial year. The pub chain had ended its previous financial year on March 28. In the first 13 weeks of the new year, revenue was up 40%. ‘The board feels that Young’s is well placed to manage the impact of the current inflationary environment on our cost base, but are very mindful of the potential impact that the inflationary environment could have on consumer sentiment and ultimately spending in our pubs,’ Young’s said. Also on Tuesday, Simon Dodd officially takes over as CEO, replacing Patrick Dardis as planned. Dardis will remain on the board to aid the transition process until September.
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Fashion retailer Quiz posted a sharp annual revenue hike but profit fell on the absence of one-off gains. Revenue in the year ended March 31 surged 97% to £78.4 million from £39.7 million. Pretax profit fell to £800,000 from £6.0 million, however. In financial 2021, Quiz benefitted from a £10.4 million gain stemming from a subsidiary disposal, as well as a £5.2 million gain from a ‘bargain purchase arising on acquisition’. On an underlying basis, which does not include these gains, it swung to a pretax profit of £800,000 from a £9.6 million loss. It has started the new year relatively strongly. Revenue in the three months to June 30 is up 62% annually and on a like-for-like basis is ‘consistent’ with levels seen before Covid-19 disruption.
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COMPANIES - GLOBAL
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German logistics company DHL, owned by Deutsche Post, is set to create 3,500 jobs through the expansion and creation of depots across the UK. DHL said it will invest more than £190 million into creating 10 new collection and delivery depots across the UK, and expanding 20 existing sites, which will create 3,500 jobs. The investment forms part of DHL’s plan to expand its UK e-commerce operation – DHL Parcel UK – through a £482 million cash boost. Nearly half of the money will be used to build the SEGRO Park Coventry Gateway, a hub south of Coventry airport, in the West Midlands, which can hold up to 500,000 items per day and will produce more than 600 new jobs in administration and manufacturing.
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Paris-based luxury goods company LVMH Moet Hennessey Louis Vuitton’s wines and spirits division Moet Hennessy acquired Joseph Phelps Vineyards, based in the Napa and Sonoma Valleys and known for its Insignia brand, for an undisclosed sum. ‘Through the combination of the wonderful vineyards of Joseph Phelps, the unrivalled experience and excellence of the Joseph Phelps team, and the support of our global distribution organization and unique expertise with premium, family-owned brands, we will continue the wonderful journey initiated by the founder fifty years ago and pursued by his heirs today,’ said Moet Hennessey Chair and CEO Philippe Schaus.
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Tuesday’s shareholder meetings
Immediate Acquisition PLC - AGM
Marks & Spencer Group PLC - AGM
Open Orphan PLC - AGM
Saga PLC - AGM
Smartspace Software PLC - AGM
Young & Co’s Brewery PLC - AGM
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