J Sainsbury plc

Hello and welcome to the Sainsbury's Q3 Trading Statement 2324 Analyst Q&A call. On the call this morning is Simon Roberts, Chief Executive and Breonna Bergin, Chief Financial Officer. I will now hand you over to Simon Roberts for the presentation.

Thank you, Olivia. Well, Happy New Year, everyone. Good morning and welcome to our quarter three presentation of results covering the 16 weeks through to January the 6th. I'm going to talk for a few minutes about our trading performance in the quarter and then of course as always brandon and i will take as many of your questions as we can um now the webcast is going to show the slides i'm going to refer to over the next 10 minutes or so and we've also sent them around this morning by email and of course they're available on our website too So let's get stuck in. So we talked clearly at our interims about our plans and our bold ambitions for Sainsbury's in the all important third quarter of this financial year. And these really delivered through the whole of the period. And we carried the strong momentum into the six weeks of Christmas with customers recognising our great value right across the store and across the offer. really engaging with nectar prices, the first Christmas with nectar prices, but also treating themselves by trading up more and more to taste the difference. Now, Argos outperformed what was a weak and highly promotional general merchandise market with a great performance, particularly over the Black Friday period. But sales did decline ahead of Christmas, and that was against an exceptionally strong performance last year. And I do just want to give a huge thank you to all of my colleagues, not only those in stores who deliver outstanding service, but also to everyone working in our depots throughout every part of our operation and right across our store support centres where the task of delivering on our bold ambition and maintaining our fantastic momentum really has required a huge step up right across the business. Against tough comps, we really did step up our grocery volumes. And this was only possible through really deliberate and focused planning, and then really backing ourselves to really deliver, particularly over the peak Christmas period. Now in stores, this translated into a further widening of our lead versus competitors in overall customer satisfaction. And we saw significant switching gains from all of our largest competitors. Now, looking at some of the detail behind this, you can see on this chart that that leading position is a result of being number one on the metrics that really matter most across the product offer, across customer service and across store standards. And ultimately, this really does reflect the fact that however hard we plan and however well we deliver products into our stores, it's the 120,000 colleagues in our stores and out on the road in our delivery vans who really make the difference to customers, as you can see on this chart. Now, I've talked before about the very deliberate choices we've made to deliver growth and improve our business. And last week, we announced another key strategic investment with a 9% pay increase for all of our hourly paid colleagues, taking the hourly wage rate to an industry-leading £12 an hour from the start of the new financial year. Now, this is really important to us because engaged and motivated colleagues are a key driver of how we expect to continue to deliver sales and profit growth. Now, this chart shows sales growth over 16 weeks of the quarter of quarter three and in the grey bars, but also in the shorter six week periods in the Christmas period in the orange bars. And so looking at grocery first, well, quarter three growth of 9.3% was slightly higher than quarter two, and that was despite inflation roughly 250 basis points lower. So really a fantastic volume performance through the whole of the quarter. The headline Christmas growth rate was a touch slower, but with inflation falling through the quarter year on year, actually the volume growth in the six week period was slightly higher than the quarter three average overall. So a really fantastic performance against very tough comparatives. General merchandise growth, excluding the impact of the Republic of Ireland closure, which is shown on the right hand side of the middle box, shows that we grew sales over the quarter, but we saw a weak performance in the run up to Christmas. And this was against the period last year when you may remember we benefited significantly from the Royal Mail strikes. And also at the same time, we saw strong demand last year for energy saving devices like air fryers and electric blankets. Clothing sales in the quarter in May regained some of the momentum in what was still a very heavily promotional market, but they were weaker over the Christmas period against the time when the weather was colder last year. Now we showed you these charts at our interims back in November, really highlighting that we've outperformed the market on volume growth every week since the start of the financial year. And against some tough comparatives over the key events in particular, we're really proud of having maintained this track record. The right hand chart here shows the switching gains that we've achieved from all of our biggest competitors. And this means that over the course of the quarter, we grew volumes faster than four out of these five largest competitors. I think it's also worth noting that the Nielsen numbers showed a much tighter spread of growth rates over the period, with our performance being very close to the strongest in the market. Now, the consistency of the proposition we're delivering for customers across value, quality, innovation and service then really pays dividends when you head into key events like Christmas, where we maintained this outperformance, as you can see. And this slide, I think, really demonstrates the consistent momentum since we reset our grocery business in 2020. When we look at our volume outperformance at Christmas in the last four years, despite some really tough comparatives, this was our fourth consecutive year of outperforming the market, but also the strongest period of outperformance of those four years. Now we've continued to improve our value relative to the market, which has been a significant driver of the consistent volume share gains we have delivered. The numbers in the left hand box showing further year on year improvement in our pricing index compared to key competitors. Now, this was our first Christmas of nectar prices, and that really delivered for customers, too, across more than 6,000 products, unlocking our best ever Christmas rose to under £3 per person and driving nectar participation on big basket shops to 90%. And we've started the new year with an extension of our Aldi price match campaign, now with 550 of the products customers buy most often matched on price. Customers are trusting us more than ever to deliver consistently great value. Now, we're proud of the work we do in our communities, and our Christmas Nourish the Nation initiative was a great example of this, with all the proceeds from the sales of our 15p and 19p Christmas vegetables going to support communities in need over Christmas. This helped contribute to total fundraising of over £6 million in the quarter to help tackle food poverty. 14% of adults in the UK have experienced food insecurity, and we are focused on ensuring that no good food goes to waste. And in the quarter, we donated more than 4 million meals through our partnership with Naverly and our front of store donation programme. Now, alongside value, we've continued to extend our ambition and our delivery on innovation. And we're really encouraged by the progress we continue to make in bringing bold new innovation for the key events. This Christmas, we launched 170 new Taste the Difference products. And Taste the Difference already has the biggest premium own label participation of all the full choice grocers, as you can see. So the fact that the volumes grew faster than anyone else in the market over quarter three and Christmas tells you that more customers are choosing Sainsbury's when they want to put something special on the table for a big family event. And again, this is growth on growth. with 13 percent taste of different sales growth this year on top of a very strong growth last year too so turning now to argos as you can see in the chart here we outperformed the market for the majority of the period with a particularly strong black friday performance but as i mentioned earlier the market was also heavily promotional bringing some margin costs to those sales In addition, you will see that we dip below the market in the three key weeks just before Christmas. So when we then look at last year's sales trend shown here in the dotted line, we knew we had a tough comparative against the Royal Mail strike last year when we really benefited in the run up to Christmas from our click and collect and store walk in proposition in particular. But the impact was a bit more year on year than we'd anticipated. This is also clear in the difference between the performance in the first 10 weeks and the second six weeks of the quarter last year, shown on these charts on the right hand side. And this was probably amplified by the relatively warm weather this year, too, against a period last year when the weather was colder and customers were focused particularly at that time on energy saving products. You can see the bounce back since Christmas, but the market remains tough with customers spending cautiously and a high level of emotional activity in the market. So wrapping up, we're really pleased with the momentum that we've built at Sainsbury's and we're winning customers from our competitors and customers are doing more of their grocery shopping with us. Having lifted our guidance to the top end of the range in November, we are reiterating our four year guidance on both profit and free cash flow today with a very strong grocery performance, offsetting a weaker performance from Argos in what was a very promotional general merchandise market and against strong Christmas performance last year. And we continue to think that we're getting the balance right for customers, colleagues and shareholders, investing to maintain momentum at a time when not everyone in the market is in a position to invest. And this is helping to lay the foundations for further growth. And as a team, we're really looking forward to talking to you about the next phase of our strategy in February. So thank you for listening to that. I'm now going to open up the call for Brandon and I to take your questions. Thank you.

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