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Sainsbury’s share price: 4 things we learnt from its Q1 results

After recording a disappointing start to the new financial year in its first-quarter results, IG explores the main takeaways from Sainsbury’s latest trading update.

Sainsbury's Source: Bloomberg

Earlier this month, Sainsbury’s unveiled a disappointing set of Q1 results which saw its share price take a major tumble after its figures failed to meet analysts’ expectations.

IG takes a look at what investors can glean from its latest trading update and what insight it holds about the future of the supermarket chain.

Sainsbury’s records disappointing figures

In its latest Q1 earnings, Sainsbury’s saw total retail sales decline by 1.2% with like-for-like sales sliding 1.6%.

General merchandise and clothing sales were the primary driver of this lacklustre performance, with both falling 3.1% and 4.5% respectively. Meanwhile, Grocery sales at the supermarket chain declined by 0.5% in Q1.

Sainsbury’s continues discounting in challenging grocery market

In a bid to address its poor start to the new financial year, in what is a very challenging market, Sainsbury’s has discounting thousands of food and grocery products.

Its premium ‘Taste the Difference’ ranges are managing to increase their market share and the supermarket chain continues to improve its customer service.

The steps it has taken have helped it stay as the UK’s fifth largest retailer by volume. However, the supermarket chain admitted that the retail market remains highly competitive and promotional, with the consumer outlook continuing to be uncertain.

Sainsbury’s looks to strengthen its balance sheet

Sainsbury’s has pledged to reduce its net debt by at least £600 million over the next three years, with the company looking to invest in a more disciplined and targeted fashion across around 400 supermarkets.

‘We will invest in 400 supermarkets this year, including adding an enhanced beauty offer in 100 stores,’ Sainsbury’s CEO Mike Coupe said.

‘We are accelerating investment in technology: 148 supermarkets now have SmartShop self-scan, 206 Argos stores offer Pay@Browse and we upgraded 29 more Argos stores in digital formats, all helping to make shopping with us quicker and easier,’ he added.

Sainsbury’s faces uphill battle in UK grocery market

Following its Q1 results, Hargreaves Lansdown analyst Sophie Lund-Yates admitted that Sainsbury’s lacklustre sales performance was not ‘a complete surprise’ for investors.

‘Looking ahead, the group said conditions are set to remain uncertain,’ Lund-Yates said, with her adding that grocery sector at large is ‘still seeing competitive pressure, meaning the likes of Sainsbury’s are being forced to push prices down across core products’.

‘So, while last year’s strong performance makes this trading update harder reading, the real challenges are coming from the wider industry,’ she added.

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