Sainsbury’s today (9 January) reported that third-quarter like-for-like sales, excluding fuel, came in at 0.9%. While this represents a slow-down from the company’s previous 31 consecutive quarters of growth, Sainsbury’s was able to increase its market share during the key Christmas trading period. Sainsbury’s star-performer was once again its own label offering and the group was upbeat on the success of its promotional strategy. However, when inflation and the contribution from store expansions is stripped out, the group saw sales volumes decline. With the likelihood that the 2013 competitive environment will remain tough, the challenge will be for Sainsbury’s to maintain its growth momentum. Here is the City’s verdict.
“The like-for-like sales number of +0.9% was a touch below our estimate of +1.3%. The outcome represents a slight slowdown from the +1.7% delivered in H1, although it was against a relatively tough comparative of +2.1% in Q3 2011/12. We also highlight that the like-for-like figure includes a 0.5% contribution from store extensions and would have been boosted by food inflation of just below 3%. Underlying sales volumes are therefore likely to have been down by a low singledigit percentage. Growth in sales through the convenience store and on-line channels remained strong, with total sales up by 17% and 15% respectively….We expect trading conditions in UK Food Retail to remain challenging, with real household incomes remaining under pressure and the competitive landscape intense. Under such conditions, Sainsbury’s like-for-like sales growth is likely to remain subdued at best, but we still think the company can progress earnings and the dividend over the medium term.” – Charles Stanley Research
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“For the 14 weeks ending 5 January 2013, Sainsbury’s has reported Q3 total sales growth including petrol of 3.9% with LFL sales ex petrol up 0.9%. This compares to consensus LFL sales expectations of up c.1%, which came back post New Year from c.1.5% on reports that Sainsbury’s sales were not as strong as hoped. There was a material slowdown on Q2 LFL sales growth of +1.9%, but the team have delivered a respectable performance. There are some positives with on-line up 15% and convenience up 17% which shows the channel shift that is going on in the industry and why Morrison (Reduce) is structurally disadvantaged… The slower than forecast growth does mean we are reducing our FY13 PBT by 2.5% to GBP730m, EPS 28.6p from GBP748m and compares to consensus last night of GBP745m, which we also expect to come back this morning. The share price has already anticipated the downgrade at the end of last week. While a very well-run business, we are also cutting our recommendation to Reduce from Hold (Hold since 30/9/11). We suspect Sainsbury will struggle to outperform in 2013 as Tesco continues its fight back and there is some margin vulnerability as momentum slows.” – Kate Calvert, Seymour Pierce Research
“Against the backdrop of an extremely tough competitive environment and strong comparatives, Sainsbury’s has delivered yet another set of robust results; the retailer outperforming the market during the pivotal festive trading period. While there are a number of things that Sainsbury’s is getting very right, the grocer’s key competitive weapon continues to be its private label offer. Indeed, during this period, its private label ranges grew at three times the rate of branded. Over the last few years, Sainsbury’s has invested heavily in strengthening the appeal of its own-brand offer, with Basics at the value end and Taste the Difference at the more premium end, providing strong protection against polarising demand and crumbling customer loyalty in the sector. The grocer’s more recent re-launch of its mid-tier offer, under the by Sainsbury’s sub-brand is also proving a success, achieving strong growth. Importantly, own development has served both to strengthen value perceptions, while at the same time reinforcing the grocer’s reputation for quality, innovative products. With price representing such a key battleground, amid the continued transfer of spend to the increasingly mainstream hard discounters and a resurgent Tesco investing heavily in promotional activity, Sainsbury’s has been able to deliver a strong value message. To this end, the introduction of brand match and its strong leveraging of Nectar for more targeted promotions, has been complemented by more creative campaigns such as feed your family.” – Joseph Robinson, Conlumino
