Shares in the UK’s second-largest supermarket chain Sainsbury’s (SBRY) topped the FTSE 100 leader board on Thursday with a 3.6% gain to a 12-month high of 241p after it reported a record increase in sales over the Christmas period and raised its full year earnings guidance.
Revenues for the third quarter to 2 January were up 8.6% on a like-for-like basis excluding fuel, with sales over the nine-week Christmas period up 9.3% on a like-for-like basis.
RECORD RESULTS
Grocery sales for the quarter were 7.4% higher thanks in part to a 128% surge in online revenues. While many customers had to change their Christmas plans at the last minute due to government restrictions on the size of family gatherings, they still treated themselves with sales of premium champagne up 52% and sales of the up-market Taste the Difference range posting an 11% rise.
Significantly, online sales grew to 18% of grocery revenues during the quarter thanks to the company more than doubling its slots for home delivery and Click & Collect and increasing its productivity with more orders delivered per van.
Pleasingly, sales of general merchandise were also robust, rising 6% during the quarter thanks to an 8.4% increase in sales at Argos, confirming our bullish call on the prospects for the non-food business in our November ‘Christmas winners’ feature.
Margins were also higher than expected thanks to stronger than expected full-price sales.
Chief executive Simon Roberts was justifiably upbeat: ‘At Christmas we focused on offering our customers great prices, great quality and great service and I feel really proud that Sainsbury's customer satisfaction scores were the highest ever in the key Christmas week. We have started the new year with a strong value offer, with Price Lock currently on over 2,500 everyday products.’
RE-RATING POTENTIAL
After forgoing business rates relief of £410 million, the retailer now expects to report underlying pre-tax profits for the year to March of ‘at least £330 million’ compared with the company-compiled consensus of between £270 million and £285 million.
Shore Capital retail specialist Clive Black was ebullient: ‘A quite fabulous trading update from Sainsbury’s. It is really is some decades since we have been able to make that statement. As such, following this update we not only upgrade our financial year 2021 pre-tax profit estimates, we also reiterate our buy stance on the stock.’
While sales comparisons next year will be ‘very challenging’ given these latest results, the profit base is ‘much higher than previously anticipated’, which together with lower costs and strong cash flow generation should lead to an increase in the company’s price to earnings ratio, justifying a share price of 320p says Black.
