Interim Results for the 28 weeks ended 14 September 2024

Strong grocery market share gains delivering profit leverage

Simon Roberts, Chief Executive of J Sainsbury plc, said:“Our food business is going from strength to strength and we’re making the biggest market share gains in the industry, with continued strong volume growth. More and more customers are coming to us for their big food shop, recognising our winning combination of value, quality and service. 

“Reflecting our leading quality, more customers are choosing Taste the Difference, with sales up 18 per cent, the strongest premium private label growth in the market. And with the biggest ever increase in customers’ value perception, we’re outperforming the market across the whole basket, particularly in core fresh food categories.

“Our grocery volume growth has delivered strong profit leverage at Sainsbury’s, partially offset by a tough first quarter at Argos. Argos trading has improved through the second quarter and in more recent weeks, so we continue to expect to deliver strong retail underlying operating profit growth and free cash flow generation for the full year.

“With strong momentum and increasing confidence in the strength of our grocery offer, we’re now investing to bring the best of Sainsbury’s to more people in more locations, including the recent acquisition of eleven Homebase and two Co-op stores.

“Our brilliant colleagues and suppliers are at the heart of everything we do and I want to thank them for all their hard work as we set ourselves up to deliver a fantastic Christmas for our customers. As we head into the festive season, there is real energy and excitement at Sainsbury's and Argos and we’re expecting another strong performance.

“We remain very focused on delivering for our customers, communities and shareholders.”

Financial Highlights

• Sainsbury’s sales (excluding fuel) up 4.6%, with Grocery sales growth of 5.0% and Sainsbury’s General Merchandise & Clothing sales decline of (1.5)%. Argos sales down (5.0)% and fuel sales down (4.4)%
• Like-for-like Retail sales (excluding fuel) up 3.4% (Q1 2.7%, Q2 4.2%)
• Retail underlying operating profit of £503m, up 3.7%, with strong Sainsbury’s and Nectar growth partially offset by a lower Argos contribution¹
  • Sainsbury’s contribution¹ up 8.7%, with operating leverage driven by strong grocery volume growth. Operating margin 20 basis points higher year on year
  • Argos contribution¹ lower year on year, reflecting tougher than anticipated trading conditions in the first quarter, before sales strengthened in the second quarter
• Total Financial Services underlying operating profit of £18m, up 38%
• Total underlying profit before tax of £356m, up 4.7%
• Statutory profit after tax of £76m, down (51)%. Non-underlying items of £(176)m on a post-tax basis predominantly relate to the restructuring of the Financial Services division
• Retail free cashflow of £425m. On track to deliver retail free cash flow of at least £500m in 2024/25
• £150m share buyback to date, on track to complete £200m programme in H2 2024/25
• Interim dividend of 3.9 pence

Outlook

• We remain confident of delivering strong profit growth in the full year, with continued leverage from Sainsbury’s grocery volume growth and a stronger Argos H2 performance. Combined with continued growth in Nectar profit contribution and delivery of cost savings, we continue to expect to deliver Retail underlying operating profit of between £1,010 million and £1,060 million, growth of between five per cent and ten per cent
• We now expect total Financial Services underlying operating profit (continuing operations and discontinued operations) to be between £15 million and £25 million (previously between break even and £15 million)
• We continue to expect to generate Retail free cash flow of at least £500 million

Strategic Highlights
We have made a strong start to the Next Level Sainsbury’s strategy that we set out in February, delivering food volume growth ahead of the market, profit leverage from sales growth, continued improvement in customer satisfaction and higher cash returns to shareholders. Across the business, we are focused on delivering the eight commitments that we made:

Our progress against these commitments will be driven by our four strategic outcomes: First choice for food, Loyalty everyone loves, More Argos, more often and Save and invest to win.

First choice for food
Our winning combination of outstanding quality, great value and leading service is delivering2. More customers are choosing Sainsbury’s for their main shop3, driving the biggest market share gains in the industry4 and switching gains from competitors across the whole market5. Continued improvement in value perception6 is increasing our customer loyalty, with more main shop primary customers7, and basket size growth significantly ahead of competitors8. We have recorded six consecutive quarters of volume growth against tough comparatives and are well set to build on our strong Grocery momentum through the peak Christmas period.

Winning more big basket shoppers by consistently delivering outstanding quality, great value and leading service

• We are outperforming the market across all categories, with core fresh categories performing particularly well as customers consistently trust us for the products they buy most often9. Customers are increasingly shopping with us for their big weekly shop, driving the biggest share gains in the main shop mission in the market³
• Customer loyalty is increasing and winning more big basket primary customers than our key competitors7. Of new primary shoppers at Sainsbury’s, one quarter are new to Sainsbury’s, with the remainder converting from secondary customers as they do more full basket grocery shopping with us¹⁰
• Taste the Difference products now appear in one in three baskets¹¹ and nearly two out of every three big shops¹², as customers treat themselves and dine in more at home. We are continuing to build on our reputation for quality and innovation, launching more than 540 new products during the half, with our Taste the Difference Summer range really resonating with customers and driving sales growth of 18 per cent in the second quarter
• Our Premium Own Label is the fastest growing in the market¹³, with premium switching gains from all grocers¹⁴ and exceptionally strong performance against the market across Fresh categories¹⁵
• Customers are recognising our consistent value, delivering our biggest ever improvement in value perception, up 8.5 percentage points year-on-year⁶. We have extended our Aldi Price Match campaign to over 650 products in our supermarkets and are further strengthening our Nectar Prices offers. We have continued to roll-out Nectar Prices across different promotional offers in supermarkets, including our popular multi-save wine events and dine-in meal deals and we are enhancing the Nectar offer with market-leading, exclusive value events with some of the biggest brands in the UK
• Overall supermarket customer satisfaction remains significantly ahead of key competitors, putting us in a strong position as we head into the peak Christmas period¹⁶

Growing our supermarket coverage and leveraging our existing space to bring more of our range to more customers

• In recent weeks we have acquired 13 new supermarkets in key target locations from Homebase and Co-op17. Combined with our organic store opening programme, this means we expect to open around 20 supermarkets within the next 18 months. The addition of these new stores will bring our quality and value to new customers, with the addition of around 400,000 sq ft of supermarket trading space to our footprint and brings more than 600,000 more people within a 10-minute drive of Sainsbury’s supermarkets. We expect strong returns from these investments, with forecast return on capital employed in the low teens. We additionally continue to expect to open around 25 new Convenience stores per year
• We continue to expect core retail cash capital expenditure in 2024/25 of £800 million to £850 million, with an additional strategic investment in Smart Charge, our EV charging business, of £25 million (lower than the previous guidance of £70 million). Our 2024/25 Retail free cash flow guidance is unchanged, with the impact on free cash flow of lower EV charging spend offset by the lease premium paid on the acquisition of 11 Homebase stores and 2 Co-op stores
• Our ‘More for More’ plan builds on the strength of our grocery performance, capitalising in particular on the strength of our Fresh food proposition. We are investing in our supermarkets over the next three years to make more of our food range available for more of our customers by rebalancing space to add around 300,000 sq ft of incremental food space. As we optimise our stores for customer experience, trading intensity and ROCE, we are making more of the right range and propositions accessible to customers, creating an environment which enables simple and frictionless shopping missions and improving our digital capabilities across our supermarkets

Delivering for customers across all our channels with a focus on enhancing our Convenience store offering

• Convenience sales grew 5 per cent in H1 and we grew market share by 30 basis points¹⁸. Overall customer satisfaction improved by two percentage points and satisfaction with availability of products improved by four percentage points¹⁹
• We have transformed our Convenience estate in recent weeks, accelerating plans to address a clear opportunity to better serve our customers. In just two weeks we rebalanced space and optimised range across our entire Convenience estate, introducing more than 600 new products. These changes better align our range with relevant customer missions and the space changes improve the store environment to deliver a simpler, faster shopping experience
• This week we announced a further strengthening of our value position, as the only grocer in the market to price match to Aldi in convenience stores. The offer covers a range of up to 200 of the products that customers buy most often, across the categories where value matters most
• Groceries Online sales grew 7 per cent in H1, with an increase in basket size driven by improvements in our digital experience, focusing on greater showcasing of innovation and promotions on our homepage. These improvements are resonating with customers, with our Groceries Online customer satisfaction moving ahead of key competitors²⁰
• OnDemand sales grew 86 per cent over the half as we continue to roll out our offer to more locations. We are strengthening our long-term partnerships with external providers, have integrated our ChopChop service within our Groceries Online app and we are delivering strong profit growth, driven by operating model improvements

Taking a leading position in driving resilience and improving sustainability in the UK food system

• We have continued to focus on innovation within packaging as the first major retailer to vacuum pack all lamb mince, using 65 per cent less plastic, and the first retailer to introduce pulp trays for our fresh salmon and trout products. We have also introduced cardboard packaging for our fresh breaded chicken and fish products, saving 649 tonnes of plastic a year. New packaging across bakery will also deliver a reduction of over 560 tonnes of plastic a year
• We were also the first UK supermarket to introduce mushrooms that have been grown without peat, reducing peat usage by 20,465 tonnes per year, as well as launching Vitamin D enriched mushrooms – enabling us to deliver over 100 million portions of Vitamin D to the nation every year²¹
• We are taking a leadership position on pay for egg farmers as the first UK retailer to launch an egg farmer group to provide greater financial security for future investment and to drive continuous improvement in animal welfare through data and insight sharing across farms
• In collaboration with Woodland Trust, we have launched an agroforestry initiative to support farmers and growers with planting plans to enable new farming practices and to support a more positive environmental impact

Improving performance in the products and services that sit alongside our food offer

• Tu Clothing sales grew 1.3 per cent during the first half, benefitting from stronger Q2 sales growth of 8.3 per cent. Significant improvements in availability and style have driven market share gains²² and a strong performance in Womenswear over the summer, with sales growth of 10 per cent in Q2. Our Autumn Winter range is benefitting from our renewed focus on design and our Christmas clothing ranges are already performing significantly ahead of last year. We have also identified additional opportunities to improve our essentials range as well as our kids and babywear offering
• Sainsbury’s General Merchandise sales declined (4.4) per cent, driven by softer demand for consumer electronics and toys within the Sainsbury’s channel and the early impact of space reallocation through our More for More programme. We are making strong progress in repositioning the Habitat brand, with Habitat sales ahead of last year as our focus on design-led collaborations resonates with customers
• Smart Charge, our ultra-rapid EV charging network, is now established in 62 supermarket locations with more than 500 charging bays. In June, we launched Nectar on Smart Charge and 60 per cent of Nectar Smart Charge customers are shopping with Sainsbury’s whilst charging. We are shifting our focus towards optimising our existing sites, particularly on building links to fleet card providers and location service providers and continuing to enhance our customer offer. In line with this focus, we are now aiming to have rolled out to 70 locations by the end of the financial year versus an original target of 100 locations

Loyalty everyone loves
We are continuing to build a world-leading loyalty platform, focusing on a personalised and rewarding Nectar loyalty scheme alongside market-leading insights and retail media capabilities through Nectar360. We have a very strong position within the fast-growing UK retail media market and are pleased with the progress we are making in delivering profitable growth, returns for our clients, building agency partnerships, extending our coalition programme and further expanding our connected digital screen network.

Nectar Prices and personalised loyalty are central in our plan to win primary shoppers

• Nectar Prices is now fully established as a vital component of our value offering, with over five million customers shopping our offers each week. This is driving improved value perception as well as greater customer loyalty, with Nectar participation up 6 percentage points year-on-year²³ and £2 billion of savings delivered to customers since launch
• Your Nectar Prices has now been live on Groceries Online for a year, with one million customers regularly accessing personalised savings and £70 million saved by customers in the last year
• We continue to advance our personalisation capability, extending the range and reach of our offers as well as creating more individual customer engagement. Our annual Great Big Fruit and Veg Challenge performed better than ever before with more than 780,000 customers participating, an increase of 10 per cent year-on-year, and over 130 million portions of fruit and veg purchased. We expect more than one million customers to participate in our annual Collect for Christmas campaign, enabling them to collect additional points to spend over the festive period

Making strong progress in growing our Nectar360 capabilities

• We continue to grow the Nectar Coalition with two exciting new partnerships. Launching in early FY25/26, customers will be able to earn points on bookings with Marriott Bonvoy, Marriott International’s travel programme, across a portfolio of more than 30 hotel brands globally and from Autumn this year our new partnership with Severn Trent Water will nudge customers towards more considered water consumption behaviours. Alongside this, we have extended our successful partnership with British Airways, and our affiliate network Nectar eShops has grown to over 800 partners, more than double the number of partners we had in November 2023
• Our agency partnerships continue to grow and we are gaining strong brand budget investment into our digital retail media services. We have strong partnerships with all the big four agency groups and have widened our relationships with independent agencies. During the half, we have deepened our partnership with two of the big four media agency groups to grant them greater access to innovations and insights, which will enable enhanced client outcomes
• We are making good progress in building the connected digital screen network across our store estate, allowing customers to engage with dynamic digital content. Our Sainsbury’s Live partnership with Clear Channel is on track to reach 800 screens by year-end and we are adding an additional 200 screens as part of our store digitisation programme this year

More Argos, more often
In a highly competitive General Merchandise market, our strategic focus is on increasing the frequency of customer visits and growing basket size, alongside continuing to reduce costs and complexity within the Argos operating model. We are taking focused action to strengthen the breadth and depth of our ranges and improve our digital experience whilst at the same time reducing cost to serve. After a difficult first quarter, we are making progress in delivering our key change programmes and further strengthening capabilities and capacity to deliver transformation across Argos.

Sales trend stronger through the second quarter and into the early weeks of Q3

• Argos sales were below our expectations in the half, particularly in the first quarter and the early weeks of the second quarter, primarily reflecting a slow start to the Summer and a reduction in online traffic
• Profit margins were impacted by lower sales, leading to heavier promotional activity and discounting, particularly in seasonal categories. This was partially offset by operating cost reductions
• Sales strengthened during the second quarter and into the early weeks of the third quarter, reflecting strategic actions we have taken to improve customer traffic and volume trends, disciplined clearance activity and better weather against a weaker comparative

Delivering for our customers with improved range, great value events and an enhanced digital experience

• We remain focused on extending the breadth of our range and improving customer perceptions of our product selection. We continue to introduce new brands through our Supplier Direct Fulfilment model which has driven 7 per cent sales growth, with more than 1,600 new products across 25 brands launched in the first half
• We continue to strengthen partnerships with key suppliers, improving ranges and securing leading stock allocations on the most in demand items, driving strong market shares on new technology and gaming product launches in particular²⁴
• We’ve reset our approach to trading events, with more impactful and focused value activity driving improvements in customer satisfaction scores for promotions and value²⁵. Our Big Red promotional events, which we launched during the first half, included more than 9,000 products across our full range of categories, covering our most popular brands
• We are taking action to grow our digital presence and traffic, ensuring Argos is top of mind for more customers. We’re making progress to deliver a more personalised online experience, with homepage enhancements already driving increased click through rates and improved add-on recommendations delivering basket size growth

Driving efficiency, speed and productivity across our operating model

• More and more customers are choosing to shop Argos digitally and our stores are increasingly being used as a best-in-class collection network, with customers really valuing our consistently fast, convenient and efficient service. We are continuing to enhance our operating model, refining our approach to clustering our stores and identifying key efficiencies which can drive improved productivity. In addition to right-sizing the standalone store estate (78 fewer standalone stores since the start of last financial year), we are tailoring store operating models by cluster, reducing cost and improving service
• We are taking action to deliver smarter, simpler stock flow, optimising working capital and availability across our network, with a focus on greater forecast accuracy and improved stock management processes
• During the first half we released phase one of our new warehouse management system, an important step in our plans for building a more efficient, right-sized replenishment network. We have also completed a significant proportion of the automation build for our integrated General Merchandise warehouse and we are on track to go live in Summer 2025

Save and invest to win
We are making good progress against the ambitions we laid out in February 2024 and we are on track to deliver £1 billion of cost savings by March 2027. We are investing in high-returning activity that is driving growth as well as removing cost.

Delivering productivity benefits through end-to-end programmes

• We have now completed the main phase of migration of our Food products to machine learning forecasting, resulting in an availability improvement of 170 bps. This has additionally driven reductions in stock holdings and a significant reduction in waste. We have started design work to move Clothing on to the same forecasting platform
• We are making a number of propositional simplifications in supermarkets to reduce the need for secondary stock replenishment and to drive range optimisation. We have rolled out shelf pushers and dividers across several sub-categories in the half, driving colleague efficiencies as well as improved customer experience through better stock presentation and visibility. We are also conducting category resets in Grocery, rationalising ranges and display of products to improve the efficiency of primary and secondary replenishment
• We are making good progress with the early rollout of intelligent automation in stores, for example by trialling automated identification of on-shelf stock gaps. We are also establishing a machine learning model to optimise markdowns on near-dated products, aiming to reduce waste costs and improve colleague efficiencies. This is a key contributor to our Plan for Better target of reducing the amount of unsold food that goes to waste
• We are entering the next phase of rolling out end-to-end efficiency changes in our Pop In and Out supermarket cluster of around 90 stores. We have already delivered profit improvements in these stores over the last two years through optimising ranges and streamlining the operating model through reduced deliveries, waste and replenishment costs

High returning investments in technology and automation driving efficiencies

• We are on track to complete our three-year future front-end programme of optimising our checkouts in all of our supermarkets by the end of 2024/25, with 523 supermarkets completed by the end of the first half. On average, this has delivered an uplift in self-service participation of around 21 per cent, while also delivering significant cost savings. We are now entering the next phase of our front-end strategy, which aims to drive growth in SmartShop participation for big basket shops and improve the functionality of SmartShop handsets
• We are simplifying our technology processes and optimising costs using cloud technology. We have announced a partnership with SAP, Accenture and AWS to consolidate our core commercial systems into a single cohesive platform, using cloud-based solutions
• We are rolling out video analytics technology in stores to protect against shrink costs. We are seeing positive early results in identifying mis-scanned items and we expect to roll this technology out to up to 200 stores by year end, and further roll out at pace through the next financial year
• We remain committed to investing in sustainable technologies, having been the first UK retailer to start purchasing wind energy directly to power our business back in 2008. With the completion of Pines Burn Wind Farm in Scotland in October 2024, we are now buying 100 per cent of the energy generated from eight wind farms across the UK

Financial Services

• Financial Services underlying operating profit grew by 38 per cent in the first half to £18 million, driven by lower expenses due to improved cost management, lower bad debts due to reduced new lending and growth in commission income, partially offset by higher funding costs
• In January we announced a phased withdrawal from core Banking (loans, credit cards and deposits), moving to a model where financial services that are complementary to the retail offer will be provided by third parties. We have made good progress over recent months in implementing this plan
• We announced in June that we have entered into an agreement for the sale of Sainsbury’s Bank personal loan, credit card and retail deposit portfolios to NatWest Group. The transaction is expected to complete in the first half of calendar year 2025
• In September, we announced the sale of Sainsbury’s Bank ATM business, comprising around 1,370 cash machines, to NoteMachine to provide end-to-end ATM managed services. The deal provides a shared commission income stream
• At the end of October, we announced the sale of the Argos Financial Services (“AFS”) cards portfolio to NewDay Group. The AFS cards support around 20 per cent of Argos sales and are held by around two million Argos customers. We additionally announced that we will be partnering with NewDay to create a new Argos-branded digital credit proposition. This will, in time, replace the current Argos credit card propositions with a wider choice of modern, flexible and more convenient ways to manage the cost of purchases. Completion is expected to occur in the first half of calendar year 2025
• Following these transactions, we will continue to benefit from financial services income streams which have a stronger connection to our retail offer. We expect the combination of commission income from insurance, travel money and ATMs alongside income from the NewDay partnership to deliver sustainable annual income from financial services of at least £40 million in the financial year to March 2028
• We continue to expect Sainsbury’s Bank to return excess capital of at least £250 million to Sainsbury’s, which we intend to return to shareholders. We will provide an update of the potential timing of this expected cash return with our Preliminary Results in April 2025

Notes
Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. They appear in a number of places throughout this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate. Unless otherwise required by applicable law, regulation or accounting standard, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

A webcast presentation and live Q&A will be held at 9:15 (GMT). This will be available to view on our website at the following link: https://sainsburys-24-25-interim-results-announcement.open-exchange.net/

A recorded copy of the webcast and Q&A call, alongside slides and a transcript of the presentation will be available at www.about.sainsburys.co.uk/investors/results-reports-and-presentations following the event.

Sainsbury’s will issue its 2024/25 Third Quarter Trading Statement at 07:00 (GMT) on 10 January 2025. 

Enquiries

1 £m Contribution – Sainsbury’s / Argos operating profit before Group cost allocation
2 CSAT Supermarket Competitor Benchmarking data – H1 2024/25 scores. Quality of Items, Value for Money Spent, Overall Satisfaction
3 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Volume Share of Market by Mission - Main Shop, YoY share % change, 28 weeks to 15 September 2024
4 Kantar Panel data. Total FMCG (excl. Kiosk and Tobacco). Grocery Volume YoY market share gain. 12 weeks to 15 September 2024
5 Kantar Panel data. Total FMCG (exc. Kiosk and Tobacco). Retailer to/ from net volume switching, 28 weeks to 1 September 2024
6 YouGov Brand Index – Supermarket Value for Money Perception metric %, Largest YoY increase since FY09/10
7 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Primary shopper numbers growth YoY, 28 weeks to 15 September 2024
8 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Packs per trip (basket size), YoY % growth, 28 weeks to 15 September 2024
9 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Volume by category, YoY % growth by Retailer, 28 weeks to 15 September 2024
10 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Shoppers Primary & Secondary churn, 28 weeks to 15 September 2024
11 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), % of baskets containing Premium Own Label tier
12 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Premium Own Label trip penetration – % of Main Shop baskets containing Premium Own Label tier
13 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Premium Own Label tier, YoY % value growth, 28 weeks to 15 September 2024
14 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Premium Own Label tier switching gains, 28 weeks to 1 September 2024
15 Kantar Panel, Total FMCG (exc. Kiosk and Tobacco), Premium Own Label tier, YoY % Fresh value growth by category, 28 weeks to 15 September 2024
16 CSAT Supermarket Competitor Benchmarking data – Q2 2024/25 – Overall Satisfaction
17 Two Co-op stores completing in H2 2024/25
18 Nielsen EPOS. Convenience market share – H1 YoY growth. 28 Weeks to 15 September 2024
19 CSAT Convenience Competitor Benchmarking data – Q2 2024/25. Availability of Products, Overall Customer Satisfaction
20 CSAT Groceries Online Competitor Benchmarking data – Q2 2024/25 Overall Satisfaction
21 Conventional mushrooms grown without peat + White and Chestnut mushrooms enriched with Vitamin D
22 Kantar Panel, Total Clothing, Footwear and Accessories. Retailer share of volume – YoY% share gains. 24 weeks ending 15 September 2024
23 Nectar participation – Supermarkets and Groceries Online
24 Argos value market share of total GFK GM market - Apple Sales September 2024 & PlayStation sales 6 months to September 2024
25 Argos Customer Satisfaction – internal measure. Q2 2024/25 - Value for Money and Appealing Promotions