Key week as giants fend off effects of the slump

Oct 6 2008 by Iain Laing, The Journal

A MORE detailed picture of high street trading will emerge this week when Sainsbury’s and WH Smith post updates.

Supermarket chain Sainsbury’s will issue a keenly awaited second quarter trading update on Wednesday.

It will be examined for any evidence that discounters and the economic slowdown are impacting on sales performance, and comes a week after bullish comments from rival Tesco.

Sainsbury’s first quarter like-for-like sales growth slowed to 3.4%, down from 4.1% in the previous quarter and below the 5.1% seen this time last year.

Chief executive Justin King revealed most of the sales rise was down to higher prices rather than volume, and said the group was “fighting hard for consumers”. Tighter household budgets in recent months have seen the market shares of operators like Aldi and Lidl rise to new highs, with sales at higher end stores like Waitrose and Marks & Spencer slowing accordingly.

Nick Bubb, retail analyst at Pali International, said Sainsbury’s relatively upmarket position meant it was under pressure. He is expecting a 3% rise in like-for-like sales, worse than the 3.9% consensus. Sainsbury’s growth for the same period last year was 4%.

A resilient performance from its travel stores should help retailer WH Smith deliver a steady set of full year results this week.

The group’s travel division, with 430 sites at airports, stations and motorway service areas, recently saw like-for-like half year sales increase by 3% excluding tobacco – a creditable performance during the consumer spending slowdown. Half year profits at the arm increased by 13% to £17m.

Its performance helped offset a 3% drop in same-store sales for its 546 shops on the high street. High street half-year profits fell by £1m to £50m.

Back in June WH Smith said it was confident of the final year outcome, which analysts believe will result in pre-tax profits of £74m or £75m. Last year the business made £76m.

Newcastle-based bakery chain Greggs, which issues interim results on Thursday, has proved resilient to the economic slowdown.

Like-for-like sales in the six weeks to the end of July were up 5.8%, an increase on the 5.1% rise during the first half of the year.

Outgoing boss Sir Michael Darrington said the company continued to face significant pressures from soaring energy and ingredient costs. But he has mitigated the impact of cost increases through product price rises and greater efficiency.

Greggs operates a total of 1,382 stores, and added 14 net new outlets during the six-month period and is confident of meeting its target of adding 40 net new shops over the full-year.

Fox’s biscuit firm Northern Foods updates the market tomorrow ahead of its first half results after what has been a momentous past six months for its key biscuit brand. The firm achieved something of an advertising coup earlier this year thanks to an animated character called Vinnie, credited with reviving popularity of its historic Fox’s Biscuit brand.

But the firm, which also makes Goodfella’s pizzas and supplies the UK’s major supermarkets, has been battling against soaring input costs, as has the rest of the food sector. It said in its last trading update that full-year commodity costs were expected to increase by around £20m, together with a £12m increase in its utilities bill.

Supermarket chain Sainsbury’s will issue a keenly awaited second quarter trading update.