Although conditions have remained supportive for UK consumers in the immediate aftermath of the EU referendum, with wage growth outpacing inflation, “the picture is changing now,” the food retailer cautioned, particularly for non-food related sales.
“After more than two years of deflation, food and fuel prices started to rise towards the end of our financial year, driven by the devaluation of sterling and commodity price increases.”
While this has benefited food retail market growth, general merchandise and clothing sales growth have been impacted by reduced consumer confidence and a marked slowdown in real pay growth.
“Economic commentators are divided on the implications for the UK economy, but there are fears that this slowdown in real income might drive a reduction in GDP growth, an increase in unemployment and a reduction in the rate of unsecured credit growth,” it added.
The group was able to reduce its net debt by £349m during the year, taking it down to £1.5bn.
But much to shareholders’ dismay, its proposed dividend for the year was 15.7% lower at 10.2p.
The Share Centre’s investment research analyst Graham Spooner thinks the pessimism during Wednesday trading is because at Sainsbury’s it’s very much the “same old, same old.”
“They’re saying things are so competitive out there, which everyone already knows anyway. And with so much competition around, all these food retailers are beating one another up. Things are not going to change.
“The focus now is Argos as the saviour because it is doing okay. But Sainsbury’s has sales that are declining and not likely to go up any time soon.”
Tesco and Morrisons have a “little bit of momentum” behind them – Spooner emphasises the “bit” – but that is largely because they have done more restructuring than Sainsbury’s of late.
“They’ve got a little bit of momentum but I can easily see that petering out for all of them. It’s like a horse race – they’re always sort of neck and neck.
Right now, though, he sees “stocks within the sector going nowhere.”
