The Week Ahead: Contrasting fortunes expected for Sainsbury’s and Next

Mike Coupe, chief executive of Sainsbury's.

Mike Coupe, chief executive of Sainsbury's. - Credit: Archant

The impact of fierce price competition on the supermarket sector will be in the spotlight again this week when Sainsbury’s posts its latest sales figures.

Sainsbury’s is expected to reveal a fifth successive quarter of falling sales when it publishes a trading update on Tuesday, fuelling fears that its prospects have been dented by a resurgent Tesco.

Like-for-like sales were 1.7% down over the third quarter covering the key Christmas period though this was not as bad as had been feared.

However, chief executive Mike Coupe flagged at the time that the uncertain trading environment, amid food price deflation sparked by the supermarket price war, meant the decline was likely to worsen in the last three months of the financial year.

He indicated like-for-like sales were likely to be in line with the 2.1% decline posted in the first half.

The trading update comes a week after latest industry figures from Kantar Worldpanel showed total sales for Sainsbury’s down 0.5% in the 12 weeks to March 1 compared with the same period in 2014, as industry leader Tesco showed signs of a turnaround with 1.1% growth.

Britain’s big four grocers – also including Morrisons and US-owned Asda – are engaged in fierce competition as they scramble for market share which is being gnawed away by discounters Aldi and Lidl.

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Shore Capital analyst Clive Black said: “Of the three large quoted players we are most concerned about Sainsbury’s. The group’s trading momentum at a time when Tesco UK is recuperating has been a long-standing cause of concern to our minds.”

Sainsbury’s will report full-year profits in May for the first time under Mr Coupe since he succeeded Justin King, who stepped down last year following a successful decade in charge of the supermarket.

They are expected to show their first fall after nine years of growth, with City analysts expecting a 17% decline to £659 million.

Next reports full-year results on Thursday after forecasting at its latest trading update that pre-tax profits were set to rise 11.5% to £775m.

The fashion retailer upped guidance by £5m when it revealed in December that full-price sales in the run-up to Christmas had risen by 2.9%, though warning that it was “very cautious” about the year ahead.

Stores grew sales by just 0.5% from October 28 to December 24 but the overall performance was boosted by its Next Directory online and catalogue arm where they were ahead by 7.5%.

The group said it had gone into its end-of-season sale with “significantly more stock than last year”.

It warned in October that it had been hit by the mild autumn weather, which resulted in it lowering profit expectations as it needed to offload goods at a discount.

Numis analyst Matthew Taylor said there was “limited scope for surprises” in the full-year numbers with the final result likely to reflect the performance of the remaining winter sale period.

He said: “The group may update on FY16 progress to date and continue to flag that its first half sales performance is likely to be sluggish against the extremely favourable weather trends over spring/summer 2014.”

Next said in December that it was expecting full price sales growth in 2015/16 to be between 2.5% and 7.5%, with the first half expected to perform at the lower end of the range.

Last year’s annual profit haul of £695m saw Next outperform rival Marks & Spencer for the first time ever. M&S’s underlying pre-tax profit was £623m.

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