1

Report on Sainsbury’s Financial Performance

Student Name

University

Course

Professor Name

Date
 2

1. Introduction to the Report

The recent global health crisis has elevated the importance of solid financial

infrastructure in ensuring organizational resilience and longevity. In a dynamic economic

landscape, financial health not just reflects a company's current stability but also its ability to

navigate and leverage emerging opportunities. A thorough evaluation of organizational

financial well-being is paramount for internal and external stakeholders via nuanced financial

tools and ratio analysis.

This report delves into Sainsbury’s financial standing leveraging proven financial

techniques and ratios. It aims to enrich management planning and inform strategic decisions

while providing stakeholders with transparent insights into the company’s fiscal strength. In

evaluating Sainsbury's, factors such as liquidity, solvency, profitability, and operational

efficiency will be analyzed, and benchmark comparisons will be offered to ascertain the

firm's market position. Insights gleaned are intended to reinforce Sainsbury's financial

strategy, setting the stage for its sustained growth and market success post-pandemic. This

assessment, therefore, not only reflects on past performance but also charts a course for future

financial prudence.

2. Introduction to the Company

Founded in 1869, Sainsbury PLC stands as the UK's second largest supermarket

chain, trailing Tesco but outpacing rivals Asda and Morrisons (Yahoo Finance, 2024). With a

foothold in retail, its focus lies mainly on groceries, but diversification has led it into banking

services via Sainsbury Bank, offering financial products such as loans and insurance (J

Sainsbury PLC, 2023a). The brand also retails clothing, home goods, and offers an online

delivery service, adapting to the consumer's need for convenience (J Sainsbury PLC, 2023a).

Sainsbury merchandise encompasses a vast selection of items. Their food and drink

segment provides everything from fresh produce to frozen items, while their 'Tu' clothing line
 3

presents affordable fashion (J Sainsbury PLC, 2023a). They're also noted for 'Freefrom' and

'Taste the Difference' ranges, catering to specific dietary requirements and premium tastes (J

Sainsbury PLC, 2023a). The company's strategy is built around customer experience and

competitive pricing, including a loyalty program named Nectar (J Sainsbury PLC, 2023a).

Strategic growth has been partly through mergers, notably with Argos and Habitat,

broadening its non-food segment (J Sainsbury PLC, 2023a). Pivoting towards sustainability,

it aims for net-zero emissions by 2040, additionally investing in digital enhancements for

efficient supply chain management (J Sainsbury PLC, 2023a).

Sainsbury presides predominantly over the UK, with its headquarters in London and

an extensive network of stores, from large supermarkets to Sainsbury Local convenience

outlets (Yahoo Finance, 2023). In facing the dynamic retail environment, challenges persist.

Discounters like Aldi and Lidl present pricing pressures, while Brexit and the pandemic have

pressed the need for flexibility in strategy (J Sainsbury PLC, 2023a). Despite these hurdles,

Sainsbury continues to evolve, striving to maintain its market position.

3. Financial Analysis

This section focuses on the analysis of financial performance of the company based

on the latest annual reports and industry averages provided by CSI Markets (2023). A

summary of financial performance is provided in Appendix A as well as supplementary Excel

file. Sainsbury's income statement for the year ending on February 27, 2023, suggests both

growth and challenges (J Sainsbury PLC, 2023a). The total revenue increased by 5.34% to

£31,491 million from the previous year's £29,895 million, which signals a positive sales

trajectory (J Sainsbury PLC, 2023a). However, the cost of revenue increased at a higher rate

of 7.11%, leading to a compressed gross profit, which fell by 15.30% to £2,004 million (J

Sainsbury PLC, 2023a). The more concerning figure is the 51.38% plummet in EBIT to £562

million and the stark reduction in net income, which nosedived by 69.42% to £207 million,
 4

reflecting significant operational or cost management pressures (J Sainsbury PLC, 2023a).

The interest expense saw a minor decrease of 3.74% (J Sainsbury PLC, 2023a). This

combination denotes not just reduced profitability but also issues in operational efficiency,

potentially exacerbated by increasing costs and possibly due to external economic factors or

internal strategic decisions during the period. Figure 1 below visualizes the financial results

of the company.

Figure 1. Income statement analysis (in GBP million)

As of February 27, 2023, the company's balance sheet reflects complex financial

shifts. Total assets have decreased by 2.80% to £26,158 million, possibly due to asset

reduction efforts like sales or depreciation (J Sainsbury PLC, 2023a). Nonetheless, a 17.05%

increase in current assets to £7,901 million, with a 5.68% hike in inventory, points to growing

liquidity, possibly in response to potential sales growth or supply concerns (J Sainsbury PLC,

2023a). The rise in total liabilities by 2.25% and a notable 17.69% increase in current

liabilities signal pressing financial obligations (J Sainsbury PLC, 2023a). Shareholder

equity's 13.89% decline could dent investor confidence, while the 18.27% decrease in long-

term debt to £5,559 million marks a strategic move to curb financial risks (J Sainsbury PLC,

2023a). Clear communication from management on these developments will be crucial for
 5

stakeholder assurance. A summary of the balance sheet analysis is provided in Figure 2

below.

Figure 2. Balance sheet analysis (in GBP million)

The company’s financial performance was also analyzed using financial ratios.

Starting with profitability metrics, Sainsbury's Gross Profit Margin diminished from 7.91% to

6.36%, a decline of 1.55%, which is significantly below the industry average of 38.98%. This

vast deviation indicates that Sainsbury is not as effective in managing production costs as its

competitors or is possibly selling products with lower margins. The Net Profit Margin saw a

dramatic decrease from 2.26% to 0.66%, indicating that net income has decreased at a faster

rate than revenues, which can be a sign of increasing costs that are not being sufficiently

offset by revenue growth. The margin is also substantially lower than the industry average of

4.98%, underscoring relatively poor net profitability compared to peers.

The Current Ratio dipped slightly from 0.684 to 0.680, remaining above the industry

average of 0.57. Similarly, the Quick Ratio experienced a slight increase from 0.502 to 0.517,

and surpassing the industry average of 0.39 indicates more robust near-term financial

stability. This suggests Sainsbury retains sufficient liquid assets to cover immediate

liabilities, a positive sign for stakeholders. The Debt-to-Equity Ratio has improved modestly
 6

from 0.808 to 0.766. Although Sainsbury is utilizing less debt relative to its equity than the

previous year, its ratio remains lower than the industry average of 0.93. This means

Sainsbury's is less leveraged and could potentially take on more debt to finance growth,

although caution must be taken not to over-leverage. An increase in the Inventory Turnover

Ratio remained almost unchanged, which demonstrates stability.

Earnings per Share (EPS) saw a steep decline, from 290.187 to 88.258, which has

negatively impacted shareholder returns. Contrarily, the Price-to-Earnings (P/E) Ratio has

risen from 0.948 to 3.037, far below the industry average of 21.01. This drastic change

suggests that the market may view Sainsbury as a less risky investment due to an anticipated

stabilization of earnings or that the shares may be undervalued, presenting a potential

investment opportunity.

The decline in financial performance may be partially explained by the overall

challenging situation in the supermarket industry in the UK after the pandemic. According to

Mitchell et al. (2020), the pandemic had a negative effect on the supermarkets’ supply chains,

which increase the costs. Additionally, according to Khan et al. (2022), the consumer

behavior changed drastically, which forced the companies in the industry to adapt, incurring

additional expenses and losses in market shares. However, as demonstrated by the analysis of

the company to industry averages, the trailing financial performance of the company cannot

be fully explained by the market trends.

4. Non-Financial Metrics

Among the non-financial metrics, Sainsbury sees customer satisfaction and dedication

to sustainability as the key matters of interest. The latest annual report demonstrates that

Sainsbury PLC has been actively working on its sustainability pledge, Plan for Better, which

includes ambitious targets like reducing greenhouse gas emissions to net zero by 2040 and a

commitment to reduce plastic packaging by 50% by 2025 (J Sainsbury PLC, 2023a).

 7

Additionally, the company supports sustainable sourcing, with a focus on increasing the

availability of sustainably certified products, such as MSC-certified seafood, and enhancing

the biodiversity of their supply chain (J Sainsbury PLC, 2023a). Additionally, according to

recent market research, Sainsbury PLC is the leader in the sector in terms of customer

satisfaction, as demonstrated in Figure 3 below (J Sainsbury PLC, 2023b).

Figure 3. Customer satisfaction index (J Sainsbury PLC, 2023b)

5. Recommendations to Improve Financial Performance

The financial analysis for Sainsbury PLC indicates potential areas for enhancement.

To bolster financial robustness, the company should engage in tightening cost management to

mitigate the swell in revenue costs. Tactical optimization of the supply chain, contract re-

negotiations to obtain favorable terms, and curtailment of overheads are recommended (Khan

et al., 2022). Concurrently, product pricing should be scrutinized to elevate the gross profit

margin towards the industry's benchmark. Operational efficiencies must be addressed to

reverse the decline in EBIT and net income. A re-engineering of processes and adoption of

technological innovations to bolster efficiency will translate to enhanced profitability.

 8

Articulation of financial strategies and rationale behind recent shifts is paramount.

Transparent communication can aid in re-building stakeholder trust and illustrate a clear

pathway for addressing present financial constraints. Moreover, in the wake of reduced long-

term debt liabilities, Sainsbury is positioned to judiciously invest in strategic arenas,

particularly those driving digital growth and ecological sustainability – areas resonant with

consumer expectations and market trends.

Diversification of revenue streams is also suggested (Xie et al., 2022). Expansion of

the breadth of financial services through Sainsbury Bank or a foray into resilient market

spaces could serve to buffer against sector-specific risks. The correlation between high

customer satisfaction and fidelity, particularly to sustainable practices, provides a unique

selling point (Vannarajah & Medis, 2020). By capitalizing on this alignment, Sainsbury could

attract a base willing to invest in sustainable and ethically procured offerings. Lastly, the

mitigation of dwindling EPS can be managed by deploying profitability-driven stratagems,

encompassing expenditure rationalization and investment in high-yield areas. Once fiscal

stability is reinstated, the company should explore strategic avenues to amplify shareholder

remuneration, such as dividends or share repurchase programs.

6. Conclusion

The comprehensive analysis of Sainsbury's financial and non-financial areas uncovers

a narrative of resilience amid challenges and a vista of potential strategies for fortification

and growth. While the fiscal examination points to areas of concern, particularly in

profitability and cost management, it also highlights opportunities for strategic refinements.

Addressing operational inefficiencies, sharpening pricing strategies, and optimizing supply

chain mechanics emerge as pivotal moves to propel financial recovery. Communicating

strategic shifts transparently and investing prudently in growth areas—digital and sustainable

initiatives—will be instrumental in navigating the post-pandemic economy. Augmenting non-

 9

financial strengths, such as customer satisfaction and sustainability commitments, Sainsbury

PLC is well-positioned to leverage its brand loyalty and align closely with evolving consumer

values. By adopting the proposed measures to tighten fiscal controls and expand revenue

avenues, Sainsbury’s can look forward to re-establishing its financial stability and bolstering

its market position, ensuring it remains a competitive force within the sector.
 10

References

CSI Market. (2023). Financial Strength Information & Trends.

https://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=130

J Sainsbury PLC. (2023a). Annual Report 2022-2023.

https://www.about.sainsburys.co.uk/~/media/Files/S/Sainsburys/documents/reports-

and-presentations/2023/annual-report-2023/annual-report-and-financial-statements-

2023.pdf

J Sainsbury PLC. (2023b). About J Sainsbury PLC.

https://www.about.sainsburys.co.uk/~/media/Files/S/Sainsburys/documents/reports-

and-presentations/2023/Q3_Trading_Statement_2223/J%20Sainsbury%20plc

%20Q3%202223%20Presentation.pdf

Khan, M., Alroomi, A., & Nikolopoulos, K. (2022). Supply Chain Disruptions and Consumer

Behavior Change from COVID-19: Empirical Evidence and Long-Term Implications

for Supermarkets in the UK. J. Humanit. Arts Soc. Sci, 6, 28-42.

Mitchell, R., Maull, R., Pearson, S., Brewer, S., & Collison, M. (2020). The impact of

COVID-19 on the UK fresh food supply chain. arXiv preprint arXiv:2006.00279.

Vannarajah, T. L., & Medis, A. (2020). Impact of customer satisfaction on customer loyalty–

The study on supermarkets in the Jaffna District. Social Science and Humanities

Journal (SSHJ), 1716-1726.

Xie, Z., Liu, X., Najam, H., Fu, Q., Abbas, J., Comite, U., ... & Miculescu, A. (2022).

Achieving financial sustainability through revenue diversification: A green pathway

for financial institutions in Asia. Sustainability, 14(6), 3512.

Yahoo Finance. (2024). J Sainsbury plc. https://finance.yahoo.com/quote/SBRY.L/history?

period1=1547510400&period2=1705276800&interval=1mo&filter=history&freque

ncy=1mo&includeAdjustedClose=true
11
 12

Appendix A: Financial Analysis Summary

Income Statement (in GBP million)

2/27/2023 2/27/2022 Net Change Percent Change
Total Revenue 31,491 29,895 1,596 5.34%
Cost of Revenue 29,487 27,529 1,958 7.11%
Gross Profit 2,004 2,366 -362 -15.30%
EBIT 562 1,156 -594 -51.38%
Net Income 207 677 -470 -69.42%
Interest Expense 309 321 -12 -3.74%
Balance Sheet in GBP million
2/27/2023 2/27/2022 Net Change Percent Change
Total Assets 26,158 26,912 -754 -2.80%
Current Assets 7,901 6,750 1,151 17.05%
Inventory 1,899 1,797 102 5.68%
Total Liabilities 18,905 18,489 416 2.25%
Current Liabilities 11,614 9,868 1,746 17.69%
Equity 7,253 8,423 -1,170 -13.89%
Long-term debt 5,559 6,802 -1,243 -18.27%
Further Details
2/27/2023 2/27/2022 Net Change Percent Change
Share Price (End Year) 268 275.1 -7 -2.58%
Number of shares 2,345,400 2,332,977 12,423 0.53%
Financial Ratios
2/27/2023 2/27/2022 Net Change Industry Average
Gross Profit Margin 6.36% 7.91% -1.55% 38.98%
Net Profit Margin 0.66% 2.26% -1.61% 4.98%
Current Ratio 0.680 0.684 -0.004 0.57
Quick Ratio 0.517 0.502 0.015 0.39
Debt-to-Equity 0.766 0.808 -0.041 0.93
Times interest Earned 1.819 3.601 -1.782 14.84
Return on Assets 0.79% 2.52% -0.017 7.31%
Inventory Turnover Ratio 15.528 15.319 0.208 N/A
Earnings per Share 88.258 290.187 -201.929 N/A
Price-to-Earnings 3.037 0.948 2.089 21.01