J Sainsbury Reports Good Enough Q1 Numbers Despite Exposure in Discretionary-Driven Categories

J Sainsbury reported a first-quarter fiscal 2023 trading update with like-for-like sales growth down 4% (up 2.9% including fuel). The grocery performance slowdown is largely expected as the benefit from increased food-at-home consumption trends started to wane, down 2.4% in the first quarter, but up 8.7% versus precoronavirus trading (first-quarter fiscal 2020). In other categories, fuel sales grew 48.3%, while clothing sales were down 10.1% with gross merchandise sales down about 11.2%, all a result of normalizing patterns after the economy reopened, higher fuel prices, as well as a strategic decision to rebalance space allocation in stores and exit the entertainment category. Argos' sales decline cadence is gradually improving from a 19% drop in the first five weeks to a 7% drop in the last 11 weeks of the quarter. That said, we do expect a slowdown in discretionary spending to hit general merchandise sales and Argos in the second half of the year. In groceries, online sales are 94% above prepandemic levels with Sainsbury's "holding on to customers gained during the pandemic."