Sainsbury’s forecasts annual profits above hopes

Food prices have deflated in the midst of a race to discount items, with German rivals Aldi and Lidl becoming increasingly prominent threats to the market shares of the “big four”.

“Sainsbury’s has surprised us, and, we sense, the market, ‘ said Clive Black, analyst at Shore Capital, adding the supermarket ‘appears to be harvesting the cost savings announced in its last strategic review to good effect”.

In August Asda reported a 4.7 percent slump in underlying sales for its first quarter, describing the fall as its “nadir”.

Sainsbury’s response to tough competition has been tactical pricing, a strategy that might lack the glitz of its previous marketing efforts but appears to be slowly easing its sales woes amid fierce competition.

“And with new online sales channels launching in 2016, Aldi adds yet another string to its bow that will be a major worry to the likes of Ocado, Sainsbury’s and Tesco, who have so far been leading the way when it comes to home delivery”.

The supermarket jumped 11.9% to 256.5p after management said it expected 2015-16 profits to be higher than expectations of £548 million.

Like-for-like sales excluding fuel slipped 1.1 per cent in the second quarter, a better-than-hoped decline.

The past year hasn’t been great for supermarkets but Sainsbury’s today upgraded its profit forecast.

Referring specifically to the Q2 results, Sainsbury’s chief executive, Mike Coupe (pictured above), said there had been an improvement in the group’s key trading metrics. Total sales excluding fuel were up 0.3%.

Moves to improve the quality of over 3,000 own-brand products were said to be on track with volumes of its Taste the Difference up by over 4% in the quarter.

After the week’s falls, the FTSE 100 has recovered 105.33 points or 1.8% to 6014.57, with positive results from Sainsbury helping the supermarket sector and Glencore continuing to recover a few ground.

Clothing was particularly successful in the quarter, notching up near-13% sales growth with the help of a Back to School campaign. This is driving better availability and lower than expected levels of waste, whilst leading to better product freshness.

The group said it opened 27 new convenience stores in the second quarter, and online grocery orders rose 15 per cent. And now it has the living wage to deal with.