Both grocery and online sales may have grown, but there were notable weaknesses in specific product categories
Sainsbury’s delivers a mixed bag of results for investors
- Grocery sales grew by 0.4% while online sales grew by 7.3% demonstrating the transition towards online still has some way to go
- Colder weather in November also lead to a boost in clothing sales
- Yet over the crucial Christmas period, the supermarket's like-for-like sales in the 15 weeks before 4 January were 0.7% lower than last year
- However, consumers were more cautious in spending across general merchandise as the highly uncertain economic and political environment continue to take their toll
- Recommendation: We remain cautious when looking at the sector overall and so maintain our ‘Hold’ recommendation for the stock
To a certain extent Sainsbury’s reasonably good trading update this morning was anticipated given relatively better performances over recent quarters compared to peers. Yesterday’s Kantar update, which suggested sales over the last 12 weeks would be around a 0.7% fall, was pretty much what Sainsbury’s have reported this morning. Grocery sales grew by 0.4% while online sales grew by 7.3%, demonstrating the transition towards online still has some way to go. Clothing sales also did well due to colder November temperatures.
However, this was offset by more cautious consumer spending in general merchandise which can partially be blamed on the highly uncertain macro-economic and political environment. There were also notable weaknesses in specific product categories such as toys and console games, possibly due to a lack of blockbuster titles.
Mike Coupe’s comments surrounding the results were fairly upbeat, and rhetoric around a sense of momentum and transition should be taken as encouraging for investors. Online sales at both Sainsbury and Argos have been good, with their premium Taste the Difference brands doing well and their meat free alternatives outperforming the wider market.
There certainly does seem to be some momentum in Sainsbury’s transition which could partly be a result of better focus after the failed Asda merger. However, this does not mean investors should be piling in to buy the shares. Competition will remain intense as the German discounters pile on the pressure and margins will never return to historic levels. Despite the good dividend yields, we still remain cautious overall on the sector.
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