(Alliance News) - J Sainsbury PLC on Tuesday reported an improved first-quarter amid simmering political scrutiny as supermarkets come under the spotlight.
The London-based grocer said in the 16 weeks to June 24, total retail sales excluding fuel grew 9.2% annually. The figure excludes fuel.
Also excluding fuel, like-for-like sales climbed 9.8% on-year.
Fuel sales alone fell 21%. Grocery sales rose 11%, while general merchandise sales improved 4.0%, helped by a 5.1% climb in the Argos arm alone. Clothing sales fell 3.7%, however.
Fuel has been under the spotlight. Drivers paid nearly GBP1 billion more for fuel at supermarkets last year due to increased margins, an investigation has found.
The UK Competition & Markets Authority said Monday that average supermarket fuel margins rose by 6 pence per litre between 2019 and 2022.
That led to an estimated combined additional cost of "around GBP900 million" for customers of Asda, Tesco, Sainsbury's and Morrisons, a report said.
In response to a recommendation in the report, the government said it will introduce a new law forcing fuel retailers to make up-to-date pricing information available to third parties.
This is expected to lead to the creation of price comparison apps and websites, enabling drivers to find the cheapest fuel in their area.
Analysts at Jefferies commented: "As an aside, yesterday's CMA ruling on the UK fuel market found 'no evidence to suggest that there has been cartel behaviour taking place and the CMA has no plans to open an enforcement case'. Remedies discussed include establishing a new monitoring body and fuel finder access scheme to 'help people find the cheapest fuel'. This appears to indirectly recognise that any increased profitability in fuel has come largely at the expense of margins in the core grocery business (as self evidenced by Tesco/Sainsbury's margins fractionally lower now versus pre-Covid levels). It could also mark a reducing focus on industry competitiveness."
Sainsbury's said first-quarter growth was "led by" convenience stores and supermarkets, with customers continuing to return to stores, a far cry from pandemic times.
Sainsbury's added: "Stronger sales growth was driven primarily by a return to volume growth, helped by a particularly strong performance over bank holidays and warmer weather towards the end of the quarter."
Looking ahead, Sainsbury's kept its outlook unchanged. It expects underlying pretax profit to be between GBP640 million and GBP700 million, compared to GBP690 million in financial 2023, and to GBP730 million in financial 2022.
Jefferies said focus in the grocery sector will continue to be on "the pace of sequential inflation slowdown, and whether gross profit growth can offset operating expense challenges".
"We continue to believe a benign resolution to these factors underpins upside risk to cons estimates," Jefferies added.
The investment bank said the grocer's first-quarter update was "sweet as nectar", though it prefers Tesco in the UK grocery space.
interactive investor analyst Richard Hunter noted the Sainsbury's faces competition on the supermarket aisles, as well as in the eyes of investors. Hunter noted Tesco is still the darling name in the grocery sector.
"Indeed, the market consensus of the shares as a sell, with Tesco the preferred play in the sector, highlights something of a gulf between the two. It also reaffirms that while there is much to like within this latest release, there is also much to do for Sainsbury to regain anything like its previous share price levels," Hunter added.
Sainsbury's shares were 1.4% lower at 270.66 pence each in London on Tuesday afternoon. It is up around 30% over the past 12 months.
By Eric Cunha, Alliance News news editor
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