- Grocery market share gains a plus
- Non-food and clothing sales disappoint
- Full-year earnings outlook unchanged
Investors responded negatively to the latest trading update from the UK’s second-largest supermarket group J Sainsbury (SBRY), despite the firm outperforming its peers over the key Christmas period.
The shares fell more than 5% to 290p, sending them to the bottom of the FTSE 100 leader board and wiping out their gains year-to-date.
MIXED BAG OVER CHRISTMAS
The supermarket operator was rightly upbeat about its performance in the third quarter, which ended on 6 January and included Christmas, after grocery sales rose 9.3% thanks to a recovery in volume, which until now has proved elusive.
Sainsbury’s has a tendency to do well in groceries in the lead-up to Christmas and over the year-end, as shown by till-roll data from marketing consultancy Kantar, and for the fourth consecutive year it delivered volume growth ahead of the market.
However, it fared less well in general merchandise, where sales were down 0.6% for the quarter and down 3.7% over Christmas, in part due to the closure of the Argos business in the Republic of Ireland.
Clothing sales, which might have been expected to perform well over Christmas, were even weaker, down 6% during the period and 1.7% over the quarter.
This, combined with the lack of an upgrade to full-year pre-tax profit expectations, which are still seen at between £670 million and £700 million, was enough to see investors take off some of their bets.
EXPERT VIEWS
Commenting on the results, Chris Beckett, head of equity research at Quilter Cheviot said: ‘While the headline figures suggest Sainsbury performed incredibly well, under the surface things look a little more uncertain. The consumer discretionary side of the business is still under pressure, with Argos and its non-food divisions continuing to struggle where consumers are cutting back on non-essential purchases.
‘For investors, there remain better-run businesses with proper scale that allows them to succeed in an ultra-competitive market, such as Tesco. But as a barometer for the Christmas period, Sainsbury’s is indicating it could be a good one all round.’
Noted retail-watcher Clive Black, head of consumer research at house broker Shore Capital, was more upbeat: ‘The end of the FY21-24 period is positive for Sainsbury, especially around its core grocery offer, which is a comfortable segue into the 7 February Strategy Update Day, where we suggest shareholders will be aspiring to the delivery of sequential EPS growth and FCF generation.’
