Sainsbury's Third-Quarter Results – What The Analysts Said

By Steve Wynne-Jones
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Sainsbury's Third-Quarter Results – What The Analysts Said

Sainsbury's has posted a 0.7% dip in like-for-like sales in the third quarter of its financial year, with marginal grocery growth (+0.4%) dragged down by negative general merchandise sales (-3.9%).

Commenting on the retailer's performance, chief executive Mike Coupe said, “We gave our customers a great combination of quality food at good prices this Christmas and we delivered a standout performance operationally."

Here's how leading retail analysts viewed its performance:

Clive Black, Shore Capital

"Sainsbury has ground out a decent Grocery trading performance to our minds, with Q3 FY2020 sales ahead by 0.4% in what is clearly a challenging market. With good ongoing progress in Clothing (+4.4%) albeit weakness in General Merchandising (Argos), overall sales (incl. VAT, ex-fuel) fell by 0.9% with Group LFL sales in the quarter down by 0.7%, broadly within our expectation of 0.0% to minus 1.0%.

"In terms of outlook, Sainsbury states that the market remains ‘highly competitive and promotional’ with a consumer outlook that is ‘uncertain’, that said the business believes that is ‘well placed to navigate the external environment’.


"Quite what this means for FY2020 financial forecasts remains to be seen, particularly since Sainsbury has guided to a profit recovery in H2 following investment in the first half of the current financial year, which took year-on-year interim numbers lower."

Richard Lim, Retail Economics

"These results show a mixed picture for the retailer. On the one hand, the food business held up relatively well in an extremely tough market. Competition was intense and the sense is that they held their own.

“On the other, Argos appears to have had a much tougher time, delivering an uncomfortable decline in sales over the festive period. Although online sales during Black Friday may have been the biggest to date, consumers are likely to have pulled forward spending at the expense of Christmas trading.

“Despite the huge investment in the digital integration of the two businesses, these results show the there is still a long way to go.


“Against the backdrop of rising operating costs and a highly promotional environment, margins are likely to have been eroded even further over the period.”

Bruno Monteyne, Bernstein

"Sainsbury's Q3 Retail LfL (ex-fuel, inc Argos) of -0.7% was +70 bps ahead of the Bernstein estimate of -1.4%. This is a strong set of numbers and again suggests materially better performance (70bps) compared to what Kantar implies, similar to our conclusion on the Morrisons results yesterday.

"By its components: Grocery sales growth of +0.4% was a +90bps beat, GM -3.9% was -190bps miss (one of the weakest GM figures since the acquisition of Argos), and Clothing +4.4% was +640bps beat to our estimates. Therefore, the beat was mainly driven by Grocery, which is c.65% of total sales, though with some contribution from clothing, c.5% of sales.

"Price investments continue. The trading release highlighted price competitiveness, with a 'Price Lockdown' event fixing prices for 8 weeks starting in January.


"Surprisingly, flat space growth across the group (no gap between LfL and total sales growth, ex.fuel) implies that the Grocery LfL growth was around the total headline figure of +0.4%. That performance compares favourably to MRW's Q3 and Xmas Retail LfL growth of -1.1% and -2.6% respectively, although the relative outperformance was expected given the performance seen in most recent Kantar till roll data."

Barclays European Food Retail Equity Research

"Sainsbury has reported its 3Q sales performance, covering the 15 weeks to 4 January. The details can be seen in the table below, but Retail LFL was –0.7%, in-line with our forecast of -0.7% (although BBG quotes a consensus of -0.3%, albeit based on only three estimates).

"The overall net new space contribution was zero, but we understand that this included a small positive contribution for Grocery and negative for GM. We also understand that food inflation was lower than in the prior quarter. We can therefore conclude that LFL grocery volumes were stronger in 3Q than in 2Q – despite the overall market being tougher.

"It is not possible to make a very direct comparison with competitors because of differing reporting periods, but we think that Sainsbury enjoyed positive Grocery LFL in the 15 weeks to 4 January. This compares with Morrison’s -1.1% Retail LFL in the 13 weeks to 3 November and c-1.7% in the 22 weeks to 5 January."


Russ Mould, AJ Bell

“Looking at this update from Sainsbury’s you might be left asking if the Grinch had stolen Christmas, as weaker sales of toys and video games at Argos proved a drag on sales.

“The brighter news is that people don’t seem to have given up on eating and drinking over the festive period and grocery sales actually nudged ahead in a very tough market.

“In what amounts to a contest to be the best of a bad bunch, industry data shows Sainsbury’s performed least worst out of the ‘big four’ groceries firms during Christmas. This represents something of a turnaround. Since acquiring Argos in 2016, the catalogue retailer has often come to the rescue of Sainsbury’s struggling supermarket operation."

“The market will therefore hope the recent weak performance at Argos genuinely reflects the one-off factors flagged by CEO Mike Coupe, like the lack of a big gaming release, and not something more troubling with the acquisition."

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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