J Sainsbury Plc Ord

Hello and welcome to the Sainsbury's 2025-26 Q1 Trading Statement Analyst Q&A call. On the call this morning is Simon Roberts, Chief Executive and Blonard Bergin, Chief Financial Officer. I will now hand over to Simon Roberts for the presentation.

Thank you. A very good morning, everybody, and welcome to our first quarter trading statement covering the 16 weeks to the 21st of June. I'm going to talk briefly about our trading performance, and then, of course, Brandon and I will be very happy to take all the questions. So I want to start here with a slide that you may remember. We shared our prelims results back at the end of April. Now, these are the priorities that we set out with the clear intention to focus and energize all of our team across the business to accelerate into the year ahead, and deliver the next phase of our growth. So now 16 weeks into the new financial year, the results we've issued this morning demonstrate the strong trading momentum we are driving across all of our brands. We're doing exactly what we committed to do, sustaining the strength of our competitive position in grocery and growing market share. In fact, we built further on our strong competitive position during the quarter, improving our prices against all competitors and consistently delivering our winning combination of value, quality, availability, and service. As a result, our food business continues to go from strength to strength. We're growing volumes faster than the market for our third consecutive year, and we've achieved our highest market share since 2016. And we're making good progress with our plan to bring the best of our food offer to more customers, with seven new convenience stores and two new supermarkets opening during the quarter. Now, if you've been into our stores or shops online recently, you'll have seen that we're going further and faster with our plan to deliver leading product innovation, particularly through Taste the Difference. And our customers are really buying into this. At the same time, we're scaling our personalized loyalty program to fully optimize how we deliver even more great value through net prices. And all of this is underpinned by the investments we're making in technology to drive efficiency, enhance our platform for growth, and support the delivery of our £1 billion cost-saving target. This is a vital point of difference for us as we continue to strengthen the competitive advantage we've built. Now, today, we've reiterated our four-year guidance of around £1 billion of retail operating profit and at least £500 million of retail-free cash flow. As we discussed at the prelims in April, this guidance allows us to continue to make balanced choices and provides the capacity to navigate the environment around us as we travel through the year ahead and deliver on our next-level Sainsbury's commitments. So, turning now to our sales performance for the quarter. We continue to drive strong momentum in grocery, growing sales by 5% against a particularly tough comparison. On a two-year basis, grocery sales were up 10%. We delivered good volume growth, with a slightly higher rate of inflation coming through across the industry, as we sold for increased cost pressure on our cost basis and those of our suppliers. Harvard grew sales by 4.4% ahead of a subdued general merchandise market, helped by warm and dry spring weather and against a weak comparative. Now, you can see here the strength of our grocery business, outperforming the market again this quarter and ahead of our key competitors. And if you look at the chart on the right-hand side of this slide, you can see clearly that we're delivering this the same volume growth against a tough comparative with very strong two-year outperformance. We're consistently delivering on our winning combination of value, quality, availability, and service. And this drives our confidence in maintaining this momentum, and we expect to continue to grow grocery volumes ahead of the market this year. Now, we all know there's been a lot of noise in the market in recent months, and there are a number of moving parts in the mix. Across the market, everyone has raised their game when it comes to delivering value for customers, and marketing activity has been ramping up to amplify key value messaging. But at the same time, operating cost inflation is working its way through the system. And so it's a very dynamic market at the moment. Within all the noise, we're very pleased with where we are and the momentum we have. Our value proposition is stronger than ever, and we've improved our price position against all competitors this quarter, as you can see. We're now offering customers even more opportunity to save on the items they buy most often through the biggest hourly price match commitment in the market on around 800 products and through next to prices on over 9,000 products. And it's clear that customers are really noticing. Our value-for-money customer satisfaction measures are now at the highest level they've ever been. Place the Difference has been at the centre of our strategy to put Goosebees back at the heart of Sainsbury's and our reinvigorated passion for innovation. It's a real point of difference for us, with a significantly higher proportion of our sales coming through premium private label than competitors. And we're continuing to make bigger market share gains than any other retailer in this space. We're delivering another strong performance in taste and difference this summer, from really high-quality essentials like our taste and difference strawberries, perfect to enjoy as we come into the Wimbledon season, and exciting new innovations in our deli and picnic ranges, which have already been very popular with customers. We grew sales by 18% this quarter, which was on the back of two years of very strong growth. And in fresh fruit, we've grown taste for difference by almost 50% over the last three years. Now, however customers want to shop with us, whether it's in our supermarkets, convenience stores, or online, our colleagues are closely focused and are doing a brilliant job in delivering the very best experience we can. Across all our channels this quarter, we've seen strong improvements in customer satisfaction, with standout scores for the availability of products, appealing promotion, and value for money. And we're really proud of the service and experience we now consistently deliver. Our customer satisfaction metrics are testament to the commitment and dedication of all of our colleagues and team. And at the same time, our suppliers and farmers have also been doing the best job in ensuring we maintain the highest levels of supply service and availability. So you've heard me say before that to win in this industry, we have to show up across all these key components of value, quality, availability, and service, day in, day out, consistently delivering on the things that matter most to customers. And you can see on this slide that when we do that, We become the first choice of food for many more customers who then choose Sainsbury's for their big trolley shops, as you can see on the right-hand side of the slide. This is the measure that is really key here. We have nearly a million more loyal primary customers than we had four years ago, a huge step on versus our key competitors over the same period of time. Now, our Nexta loyalty program has been truly transformational for our grocery business, and Nexta Privacy has been a key driver of the increase in customer perception of our value and of our primary customer growth. The sense of our loyalty platform powers Nexta360, our market-leading loyalty customer insight and retail media business. Now, we recently announced that we're taking another big step forward with this, with the launch of Nexta360 Columns. the most advanced retail media platform of its kind in the UK. Column will be a game changer in terms of how easily brands and agencies can access the full potential of our retail media network to run on-channel campaigns and importantly be able to measure their effectiveness. Built in-house, Column seamlessly brings together all of our existing capabilities in one place. a single platform for audience insights, media planning, and activation and measurement. It will set us apart in the client service that we can provide, delivering an enhanced experience that is quick and simple to use, and with market-leading measurement of performance available throughout. Now, we're really proud of what we're doing here with Colin, and we're excited about its launch later this year. It will be a huge unlocker of our potential to go much further in this space, and we're extremely encouraged by the phenomenal response we've had from brands, agencies, and partners so far. Now, building on early progress in Q4, we're pleased to have driven further improvements at Argos this quarter, delivering sales growth, traffic growth, and volume growth as we showed up well for customers, particularly when the weather was warmer and drier in comparison to a poor start for the summer last year. And we're making good progress too with our more Argos, more Optum strategy. We're well underway with the strategic choices we laid out in April, which are all about improving the digital journey, strengthening our value proposition, increasing our desirability and awareness of the ranges that we have at Argos, and further expanding our Stop Loss ranges. However, of course, it is a challenging backdrop. The general merchandise market is highly competitive and remains subdued as customers continue to spend carefully on discretionary items. There's also been a big increase in activity from some of the global online retailers, refocusing their efforts and investment on the UK, so it's a very competitive market. And we're now facing into top of house comparisons in the second quarter, as we're up against the period when we ran a lot of clearance activity last year. We know there's a lot more to do here, and the team now leading us are very firmly focused on strengthening our fundamentals and delivering a stronger sustained performance over time. And so in summary, we're really pleased with where we are at this point in the year as we deliver against the priorities that we set out for the year in April. We're also encouraged by the level of strategic and operational progress being achieved right across the business and with our strong and sustained momentum relative to the market. We are ready to continue building on this with a particularly strong plan this summer across value, quality, innovation and service at both Sainsbury's and Argos. And our team is more joined up than ever, focused and connected. We are ready to seize the opportunities ahead as we prepare for the second half. So thank you for listening, and we'll now hand over to Q&A.

We will now go to Q&A. If you would like to ask a question, please use the raise hand feature at the bottom of your screen. Alternatively, if you're dialed in, please press star nine on your handset now. To keep things fair as possible, we ask that you only ask one question. If we get additional time, please rejoin the queue by re-raising your hand or pressing star nine and we will try to get back to you. We will pause for a moment to allow questioners to enter the queue. The first question is from Manjari Dhar at RBC. Please unmute yourself and begin with your question. Morning. Morning. Thank you for taking my question. I just had a question on taste and difference, if I may. I think the growth has accelerated, obviously, a strong performance. I just wanted to give some colour on how much you think that acceleration is your own initiative and how much other factors in the market consume the trends of other players and how sustainable you think that high level of growth could be. Thank you.

Enjoy. Thank you. Look, I think A couple of things to say here. I mean, the first thing is, you know, when we launched Food First back in 2020, we made a very clear commitment at that time we were going to really power innovation at Sainsbury's and we were going to really build our capability back then to make sure that we had, you know, the leading innovation in the market. And what you can see now is four years on, five years on, just the year-on-year-on-year progress we're able to deliver, then we've got a fantastic team working on product innovation and constantly scanning the world for the best products that we think our customers will love. And what we can see this summer is another big step on in the innovation. The products that we've launched this year, 250 products this summer in case of difference, particularly in all the food for outdoor eating in summer, techniques, family gatherings, our customers are loving them. And What we're seeing is, therefore, we've grown taste for difference sales in fresh food in the quarter by 20%, 18% overall for taste for difference, and fresh food sales are up 50% over the last few years. So a real step on performance. And we think there's a lot more to come here. We're really seeing customers are buying into this situation. but at affordable prices, and that's one of the things that really stands, takes the difference out from much of the competition that's out there. So, great momentum, more definitely to come in this space, and, you know, looking at the plans for the rest of this year in terms of innovations, we're going to autumn and Christmas, and, you know, it's really, really strong. New thinking, new products coming our way. It's a bit more broadly in the market. Look, I think, you know, a lot of the market has come on board to really focus on premium. You know, it's an area where customers I spend more time at home, eat out less. It's clearly something that, you know, most retailers are focused on, but we really are seeing market-leading growth in this space, and it's something we intend to stay very focused on.

Great. Thank you.

Thank you.

The next question is from Isabel Debreva at Morgan Stanley. Please unmute yourself and then give me your question.

Hello, Isabel. Good morning.

Good morning. Thank you for taking my questions. I had a question on Argos. Could you give us some color on what the like-for-like for the sales growth which has been including seasonal outdoor gardening sales for the quarter so that we can understand what the weather impact was? And then as we go through the year, I guess given that the weather happened earlier this year than it did last year, this could mean that there is less discounting on the markets. But then on the flip side, you mentioned the market is very competitive. We have various data sources telling us that the consumer is slowing. So would your expectation be that all of these tailwinds from the weather, from dollar, what have you, may essentially get passed on to the consumer and the environment stays very competitive and deflationary to our customers?

Thank you. Well, shall I maybe try to give you some sense of how we're feeling about what's driving the performance in the first quarter and then maybe Blanard in terms of how we look at over the rest of the year. So, look, I think a couple of things to say here. I mean, as you've already said, you know, the general merchandise market is intensely competitive and highly promotional and we definitely expect that to continue. You know, that being said, you know, we're encouraged with the performance in the first quarter. Sales are 4.4% at Argos. You know, and specifically to your point, you know, When we think about the composition of those sales, clearly Argos is a very seasonal business. We've always said that. And we were up against a particularly weak comparative last year when the weather just didn't go our way at all in the first quarter of the last financial year. So when we look at the overall performance, what I would say is categories like outdoor, garden furniture have performed particularly strongly. But big ticket items haven't been so strong. There was the Euros last year, which meant we sold a lot of TVs last year. That obviously hasn't repeated issues. When you look at it in the round, we'd estimate around a third of the total sales growth in quarter one is attributable to both the seed malady that came forward earlier. And also I should mention the Nintendo Switch as well, which was an important launch in the period. So that's how we think about the breakdown of sales. seasonal performance, just within the categories as well, to your question. Obviously, garden furniture, as I say, is strong, but some other elements, garden hardware, as I say, big TVs, you know, have a tougher period year on year. And then when we think about, as we look ahead, do you want to ask another one?

Look, we've had the guidance last year on year, but there's a few things to note here. Look, if the summer continues as it is, sales will continue and will continue to be competitive on that. So it's very competitive market. It's the Jews at the moment, and we're feeling that as well. But, you know, let's see how the summer progresses to see how August progresses. The one thing I would say, and Simon talked about it earlier, we're really working through the strategy at the moment, working through the foundations on that, improving the range, improving the digital journey, improving the customer experience, and that takes time. So we're starting to see sort of early signs of that, but it will take time. So big-ticket spend is still under pressure in August.

Yeah, great. And I thought maybe just the last point to make as well to your question is, obviously, if the weather continues good, then it will continue to drive the seasonal performance. I mean, the reality is that last year, summer didn't really kick off until July. We're only in reality halfway through the summer. So better weather in the period ahead will obviously help drive further seasonal sales.

The next question is from... Sridhar Mahamkali at UBS. Please unmute yourself and begin with your question.

Sridhar, good morning. Hi, good morning. Thanks for taking my questions. Maybe just to go to the relevant guidance, Simon. You're re-rating £1 billion and you've talked about capacity to invest. Maybe just two elements of the question here. One, how do you characterize the market and your investment in the period? Was there anything noticeable in the way the market was competing? versus what you had planned out. And clearly, there is an element of phrasing here. You've talked about it. Can you help us understand the moving parts so that we can have a better sort of first half, second half sort of numbers in the models? Thank you.

Okay, sure. Shall I talk a bit to guidance and kind of how the markets are? to your question and then maybe we can talk about how we think about first half, second half. Look, I think what's clear is the trading statement. We're 16 weeks in for our financial year. And so, you know, it's early in the year, isn't it? Still much of the summer still to come. I think, look, in terms of how we characterize where we are, I would say that pretty much we're exactly where we expect to be on both our value and market position at this point in time. You know, I think it's really clear. We said this in April. There's still a lot going on out there and everyone is raising their game. I think there's clearly a combination of an intensified focus on value. A lot of brands are increasing their marketing investment at the moment to make sure that value cuts through. But there's also a lot of cost pressure out there still that needs to be passed on. Inflation is moving through the system. Quite a bit's happened. There's still more to happen. And that's the reason why, as you said, we said at the start of the year that we were committed to staying the strength of our value position. We spent four years building it. And you can see here that the benefits of that as we've come to the first quarter, the biggest market share gain, biggest market share performance in 2016, the most competitive we've been, the best customer satisfaction metrics on value. And we're very focused on making sure we maintain that over the rest of the year and hence the reason for ensuring we have the capacity, as we said, in April to be able to navigate whatever happens over the period ahead. And I think, you know, just in terms of how we think about where we are, you know, the market, you know, is behaving rationally. You can see our relative strength on value this morning. But there's no doubt there's more focus on value and there's more focus on making sure customers get to see the value in the offer. All right.

Yeah, great. So great question, Sridhar. You wouldn't expect a subject guidance 16 weeks into the year on that, but we are pleased with what we're seeing in Q1 and the performance and how it's playing out for us on value and on market is exactly where we expect it to play out. What I would say on profits, we talked at year end that we'd expect them to be more H2 weighted. There's a few reasons for that. The first one is the space comes online, the rebalance of the space in the new stores and we've got some disruption happening there. in H1. And the second thing is this EPR tax that we talked about, that needs to be booked in H1. That's the accounting rules that have come clear in the last few weeks. We've seen that all be booked in H1, so that's about an incremental £30 million to be booked in H1. But it's a timing, so we're still holding our guidance.

That's very helpful. Thank you. Thanks, Rita.

The next question is from William Woods at Bernstein. Please unmute yourself and begin with your question.

Hello, William.

Good morning. Hi. Good morning. Hi, Simon. Hi, Bernard. So I just want to build on Trudell's question, really. Obviously, we're kind of six months into the price investment cycle now. How much do you think these price investments are kind of noise in promotions or marketing versus a kind of real structural change in the pricing landscape? And I suppose, is there any change to anything that you've seen since we maybe spoke at your full year results? Thanks.

Thanks a lot. So let me just try to build on what we've said. So look, you saw in the slides I shared at the top of the call that we've actually strengthened our relative price position against competitors through the first quarter of the year. And I think that's a function of two things really. One, the strength of our offer, the combination of now the biggest healthy price match in the market 9,000 products on next prices and everyday low prices. So what we're seeing is as the combination of this focus on value continues to play out, but of course inflation gets passed through in the market as well, that we're able to make sure that we continue to sustain the strength of the value position that we have. I think in terms of what's been happening, as you say, there's a lot of noise out there. One of the things that we have stayed very focused on, and we said this right from the beginning, our value investment has always been focused in the center of the plate, the key categories, the key products that customers buy most often. And that has been the single biggest determinant of the shift for us in customer value perception. and the single biggest driver of the reason why a million more primary customers are now shopping at Sainsbury's, which is the confidence in those products at the centre of the place that customers are now feeling really sure about, and they're then shopping across the rest of the store. Obviously, every brand is following their own relative strategy on value, but for us, that has been absolutely dangerous. Because when you're in fruit and veg, or when you're in dairy, when you're in meat, fish and poultry, the key areas at the centre of the basket, that's where customers have got real value now. And we've been absolutely determined to stick to them and continue to drive that plan forward. In terms of as the year plays out, I think we're very early in the year, as Granada and I have both said. There are certain moments in the year, aren't there? You know, the back to school period in September, the running to peak. There's still a lot of this year to happen, which is why it's very important we maintain the capacity we need to ensure we can sustain the strength of our value position. You can see the momentum we have in the business. We're encouraged by it, but we're not at all complacent with it. There's a lot more to do. We've got a very focused plan this year. And above all else, we're going to make sure that customers see more and more reasons to be confident and trust our value positions, which is what we're seeing really underpinning our position. The marketing effort, I think, is to be expected. As value focus increases, there's always going to be more above the line. You saw at the top of this call, we shared our latest activity. We're out on both value and innovation, and it's really working at the moment.

Thanks, Rob.

Just a reminder, if you would like to ask a question, please use the raise hand feature at the bottom of your screen. Alternatively, if you have dialed in, please press star nine on your handset now. The next question is from Francois Degarde at Capsa Chabrot. Please unmute yourself and begin with your question.

Hi, Francois. Good morning. Good morning. Thank you for taking my question. If you involve yourself. Good morning, August. Thank you. With Lagos, what proportion of sales do stockless branches represent? And for the rest of the business, how do your stocks level compare to your historical benchmarks? Thank you.

Okay, so just I guess to try and get behind the question, the key point here really is that You know, we've had an encouraging start in our boss. They're in sales of 4.4%. So if the kind of question behind your question is, you know, how are we feeling about our stock levels at the moment, particularly on seasonal products, we're comfortable about where we are. You know, we've obviously bought, you know, a quantity of stock to make sure we can satisfy the season. So the point I made before, you know, we've had May and June. It's still July and August to come and we're well set to make sure that we can continue to give good availability but also manage our stock levels in the post that we need to be on, particularly the seasonal areas. So, overall, I think we would say encouraging start at Argos, weak imperative last year. Obviously, the comp gets significantly more as we cleared a lot of clearance out last year. We're going to keep very focused on making sure we deliver our Argos plans through the coming weeks and look if the sun continues to shine, then that will present opportunities to make sure we can take advantage of that. More broadly to your question, Stoploss is playing a really important part in our More Argos, More Often plan. We know that customers love Argos, but they want to find a wider assortment of products on the Argos platform. And that's why we're bringing more brands, more product ranges. Now, in the thousands, as we add more content to the Argos platform, we made quite a big move forward with this last year, and we're continuing that momentum this year, adding more brands, adding more products, and making sure that when customers shop at Argos, they can get the full range of both categories, assortment, and brands that they want to find. And we're finding more and more that brands want to come on to the Argos platform, which is also really encouraging too. So a building picture here for Antwerp, and one that will be a really important part of delivering the more Argos, more Argos than plans.

Thank you.

Our final question is from Isabel de Breva at Morgan Stanley. Please unmute yourself and begin with your question.

Isabel, good morning again.

I've re-entered the queue because there was only one question. No problem. I'm actually very interested in the Nexus 360 pollens. Could you give us some examples of how you're going to incorporate AI in the platform? And then also, could you give us some examples of what features this platform has which make it differentiated versus what else is on the market to make it the most advanced unified retail media platform so that we can understand how it compares to the peer group as well?

Yeah, no problem at all. Thanks for the question. It's a really important area for us to focus on at all, actually, because I would say that we've had a phenomenal response from brands and partners and agencies to Netflix 360. The team took this. to the recent county event and the response was way beyond actually what we expected. So why is that? And maybe if I can just try and unlock a bit, if you're a brand or an agency, how this is going to work for you. So if we just take an example, I'm a big brand or an agency working for a big brand and I want to build an omni-channel marketing campaign, I'm going to be able to log on to Pollen and I'm going to be able to feed into Pollen the marketing brief and then support it, as you say, with AI column will then support the decision-making of which channels to use, where the campaign will be run. And that could be media within the media network. It could be outside changes or Argos. And then will help build towards the targeted audience. And it will then, with AI, help set up operationally the campaign as well. So effectively, fast access into a platform, navigating how the campaign wants to launch, and then operationally building the campaign, all of that powered by AI. By the way, we developed this in-house. It's been a really strong example of us working across boundaries. Net360, digital technology, BNI, we're working together, and our HR is capable to build this in a really focused way. And then once activated, it will measure attribution and reporting and also take care of invoicing and billing as well, so really bringing on rivals platform for brands to be able to move with real agility but also speed to execute their marketing campaigns and we go live with this um in the autumn so lots of um lots of excitement and lots of opportunities for brands and partners and clients to be able to access that capability thank you and just a real shout out to our team actually on this who have worked you know, in a really determined way, you know, led by, as I say, the huge focus in X360 and our technology teams to build this in-house and something we, you know, really want to make sure, you know, really drives a real difference for us.

Great.

We have one further question.

Oh, great. Yeah.

One further question from Sreetamahamkali at UBS. Please unmute yourself and begin with your question.

Hi again, Sreetam. Hi, Simon. Sorry to come back in the queue. Just one follow-up, please, on Argos. Simon, you referred to tougher comps in Q2 to come, but just help us understand the shape a little bit. I think comps are tough, admittedly, versus Q1 to Q2, but they were last year driven by markdown sales because of poor Q1. So would we be right in the margin comps are easier, and hence if sales remain healthy, back to your point about summer weather, July was trading still to come. we shouldn't see the level of marketing activity relative to Q2 last year. Is that a reasonable assumption?

Yeah, thanks, Rudolf. Let's just go to quarter one, quarter two last year. So, as you say, quarter one last year, we had a very poor weather period, which meant we didn't see the seasonal sales that we've been able to capture this year. It also meant that there was a building level of stock coming through quarter one into quarter two that we then, as you say, needed to clear in the second quarter last year. What effect did that have? Well, it definitely drove volume. And you can see when you look at the comps last year, we had a relatively stronger stock. failed quarter in quarter two as we cleared all that seasonal product. The right thing to do is to clear through all the seasonal products and get a clean edge into quarter three. So that gave a volume upside in the second quarter last year, but a margin impact. So as we come into the second quarter this year, what we're signalling is that we're encouraged with the sales performance at 4.4%. As I said earlier, we've had some benefits from the weather, but also I should stress the underlying strength of Argus is improving. The work the team are doing to make sure we get availability, to make sure that we get an improved digital experience. That's really starting to come through, and we expect that to continue. But we also know that the market is incredibly competitive, and that's the point I would just add. Particularly the global digital players have seen some of the recent events, particularly around tariffs, for example, and options to really step up their digital PPC investment into the UK market. And so as we come into quarter two, we're going to have to be very, very focused on making sure our offer is strong in the context of the market. And that's why we should know that the comparisons on sales are tougher as we come into this quarter. And we'll need to make sure that the offer shows up really well to take advantage of both the weather and the customer demand. mindset out there so that we can navigate what is still a highly competitive market.

Okay, thank you. Thanks, Rita.

That was our final question. I will now hand back to Simon Roberts for closing remarks.

Well, I know we've got a few people on holiday this week, so thank you to everyone for joining the call that's been able to join. I hope that's been a useful call. Really appreciate your questions. Look, as I said earlier, we're really pleased about the strong start to the year we've had and the momentum that we've got. And as you can see, we're exactly where we set out to be back in April, both on value and on our market position. So a strong performance coming through the first quarter, well set for the summer. And we very much look forward to obviously continuing to deliver our plan and to catching up with you through the summer and, of course, our interim results in November. So thanks, everybody, and I hope you have a great summer.