Retail

Sainsbury's Third Quarter Results – What The Analysts Said

By Steve Wynne-Jones
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UK retailer Sainsbury's has reported a 5.2% increase in third-quarter sales, with sales rising 7.1% over the key Christmas period (six weeks to 7 January).

"We delivered the best possible Christmas for customers as millions of households managed their budgets differently," commented chief executive Simon Roberts.

Here's how leading industry analysts viewed its performance.

Orwa Mohamad, Third Bridge

“Sainsbury’s focus on everyday low prices and its Aldi price-match scheme only mitigates market share losses. Meaningful levels of growth look very difficult over the next 12 months.”

“The only way Sainsbury’s can really lighten the impact of the discounters is by playing to its strengths around on product range, non-food items, convenience, and being competitive on the key basket items. For now, discounters like Aldi or Lidl offer comparatively limited ranges.”

“Sainsbury’s is fighting a rearguard action to maintain its gross profit margins by carefully passing on extra costs to customers. However, every day that the cost-of-living crisis persists lends greater strength to the likes of Aldi and Lidl as their store numbers grow and the stigma of using discounters melts away.”

“Our experts say Sainsbury’s could do more to improve operational efficiency around range rationalisation and simplifying processes. They are lagging behind Tesco in these respects.”

Russ Mould, AJ Bell

“Supermarket chain Sainsbury’s having a record Christmas is undoubtedly impressive given a difficult consumer backdrop but there remain pressures on consumer spending to come.

“A winter World Cup helped as people bought in booze and food to watch the games and given this was the first ‘normal’ Christmas since the pandemic it seems people were in the mood to party if they could afford to.

“An increase in guidance for cash flow feels significant and Sainsbury’s market share gains suggests that it may have proved a relative trading down candidate for people who would otherwise have shopped at Waitrose or Marks & Spencer.

“However, Sainsbury’s ownership of Argos could be an Achilles heel – it performed creditably over the Christmas period but it is more exposed to discretionary spend than the core groceries business.”

Clive Black, Shore Capital

"[Sainsbury's] has recorded what we see as a very good Q3 trading update that embraces the Christmas 2022 period, one that the company states was a record from a trading perspective.

"Following this update, with raised FY23 guidance, we upgrade our consensus FY23 PBT estimate by 6.3% to £675m and would expect prior statement consensus of £644m (source, Sainsbury’s) to move higher too; the guidance range that Sainsbury speaks to is £630-690m."

"The good operational performance of Sainsbury, its sound prospects, strong financial constitution, high FCF yield, and strong dividend credentials lead us to believe that it is a notably undervalued equity that may just be worthwhile doing some work on. Mr Roberts’ considerable strategic thinking is bearing handsome fruit."

Charlie Huggins, Wealth Club

"This is a solid performance from Sainsbury's with the group raising its profits and cash guidance for the year, against an intensely competitive market backdrop. It seems that UK shoppers indulged in one final sales splurge in the run up to Christmas, benefitting Sainsbury's and its peers. However, with the slowdown in consumer spending yet to really bite, it's likely the environment will get tougher.

"The squeezed middle is never a particularly pleasant place to be, but especially not in an inflationary environment, when cash-strapped shoppers are feeling the pinch. Sainsbury’s lacks the scale and financial muscle of its larger rival, Tesco. And it simply can't compete with the prices of Aldi and Lidl.

"In fact, the threat from Aldi and Lidl to the big four supermarkets has arguably never been greater. Their aggressive expansion means they now command a combined market share of over 16%, placing them second only to Tesco. This is up from 10.7% five years ago.

"With Aldi and Lidl continuing to expand at a rate of knots, and the economy being strangled by high inflation, Sainsbury’s will have to run very hard to stand still."

William Woods, Bernstein

"Overall LFL grew below food inflation for the period due to a mix of Sainsbury's strategy of underinflating the market and consumer trading down – own brand growth during Christmas period grew +10% vs. overall +7.1%. However, we do like their strategy of launching more Taste the Difference SKUs, which grew +10% YoY, as we think they should focus more on quality and delivering their food first initiative.

"Total retail grew +5.2% but Sainsbury's saw faster growth during Christmas period (6 weeks to 7th Jan) with +7.1% YoY growth, delivering a record Christmas sales for SBRY. Overall, SBRY upgraded FY22 UPBT guidance to higher end of the £630-690m guidance with £600m FCF (vs. >£500m). They cited lower finance costs (£15m lower) being part of the reason for upgrade. Consensus was slightly below the new guidance (£644m UPBT; £560m FCF) so we should see positive upwards revisions."

Joe Dawson, GlobalData

"Sainsbury’s Q3 FY2022/23 results highlight that it cannot be underestimated in the supermarket price war, with the grocer reporting sales growth in both its grocery and general merchandise divisions as it prioritises value for money for its customers.

“Despite these positive results, they do come in the wake of Aldi and Lidl reporting sales growth of 26% (for December 2022) and 25% (for the four weeks to 25 December) respectively, highlighting that the discounters remain a clear threat as they entice shoppers away from the traditional market leaders. The discounters were the main recipients of consumers switching retailers for food & groceries, and 21.2% of consumers that stated they would switch retailers were switching away from Sainsbury’s, according to GlobalData’s December 2022 monthly consumer survey.

"Sainsbury’s expansion of its Aldi price match scheme in January will help in protecting market share but the grocer must rebrand itself as a viable option for affordable groceries, by continuing to lock down its prices and champion its Basics value range.”

© 2023 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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