Sainsbury’s has today reported a 1.4% fall in pre-tax profit to £788m for the year to March 16 while like-for-likes including VAT and excluding petrol were up 1.8%. Retail Week takes a look at the City reaction.
Justin King has led Sainsbury to another year of steady progression in still challenging economic and sector conditions. Sainsbury has developed into a materially more resilient business than was the case when he took control of the reigns, showing considerable empathy with its core customers, attracting additional footfall in conditions arguably not suited to Sainsbury and demonstrating considerable innovation over the years be it Switch ‘n’ Save or Brand Match. The group has outperformed its major peers and much of the market over the last seven years of consumer economic turmoil in the UK and so gained market share; to c17% (source: Nielsen).
We share Mr. King’s expectation that Sainsbury will make further progress in the current financial year albeit Tesco UK may finally be a more formidable competitor than has been the case for some years now. We also sense that Waitrose may grow as a ‘thorn’ in Sainsbury’s side with its market share expected to exceed 5% soon. We have not mentioned Mr. King’s ‘crown’. No doubt he will face the same question over & over today. From our perspective we expect ‘granddad’ to be around for a while longer yet but for succession planning to be an understandable and sensible feature for the Chairman and the wider Board. Shore Capital analyst Clive Black
FY results are in line with estimates and good considering the tough competitive market. The main news is that Sainsbury is buying the other 50% of its Bank from jv partner Lloyds for £248m. Our view is that it will be some time before Sainsbury will have full control of the Bank and have the systems it wants in place and thus, in light of Tesco Bank’s slow progress under Tesco’s full control, we do not think this changes the near term investment case for Sainsbury. We like Sainsbury’s because our recent survey results show Sainsbury’s sales momentum is set to continue with a net 23% of customers highly recommending the retailer to family and friends. However, with limited upside to the operating margin (3.56% in FY13) due to the very competitive nature of the industry, and with capex spend greater than PBT, leading to rising net debt, we remain Neutral on the stock. Espirito Santo analyst Caroline Gulliver
The FY2013 results are OK, but guidance looks slightly disappointing and the decision to buy out the Bank – while sensible – adds risk over the transition period. While there is some good news on reduced space growth, we don’t think that it goes far enough. We think that the food retailers need to go cold turkey on the short term fix for growth that is new space, especially with over 20% of food retail likely to go online. We are moving from Buy to Hold on the back of the new guidance and proximity of the shares to our Target Price of 400p. W e move from Buy to Hold. Slightly disappointing guidance, increased risk as a result of the buy-out of its banking jv and closeness to our target price, means that we are moving our Recommendation from Buy to Hold. We think that the implications of the ending of the space race and the re-focus of investment online will lead to a revaluation of the sector, especially as logic then suggests significant and recurring returns of capital to shareholders. Our Blue Sky Analysis – which seeks to highlight the re-rating possibilities for those who win online – suggests decent potential long term upside for Sainsbury shares, to 540p, but we think that the shares are due a pause for breath. Panmure Gordon analyst Philip Dorgan
Sainsbury: The lengthy statement is full of the usual ebullient stuff about how their values have helped JS outperform the industry. Modest 6% profit growth was achieved by the business last year, with £756m PBT a tad better than expected, and Sainsbury will point out that profits are falling, by way of contrast, at Tesco and Morrison’s. With the expected acquisition of Lloyds’ 50% stake in the Bank (for £248m) and the renewed focus on convenience stores already well flagged, the main interest will be in how the perpetually ebullient CEO Justin King comes across at the analysts meeting at 9am, after all the recent speculation about his future. Independent analyst Nick Bubb
Sainsbury’s has compelling growth story to tell in other areas of its business. Annual online grocery sales are now approaching £1billion, growing nearly 20% over the year. Elsewhere, its non-food offer is relatively immature compared to its supermarket competitors; its general merchandise and clothing sales continue to grow at more than twice the rate of food, offering future scope for growth. In addition, with the announcement that the retailer is acquiring Lloyds Banking Group’s 50% shareholding in Sainsbury’s Bank, Sainsbury’s has further opportunities to further leverage its brand loyalty at a time when consumers still lack confidence in core financial institutions.On the horizon, Sainsbury’s faces both immediate and long-term challenges. Strong comparatives will undoubtedly provide a challenge, particularly considering the wider economic backdrop. Tesco’s resurgence is also a threat, as its own investment programme in own brand, store strategy and price competitiveness gathers pace. More pertinently, rumours of chief executive Justin King’s departure, have caused some uncertainty among investors. However, its proactive approach to evolving shopping trends leaves it ideally placed to make further market share gains. Conlumino consultant, George Scott
Sainsbury’s is on track to overtake Asda as Britain’s second biggest supermarket by market share. Despite a fall in profits, the supermarket has increased sales thanks to the rapid growth of its convenience stores, ecommerce offering and its Tu clothing and homeware range. With its Tu range, the retailer has been able to capitalise on well-established relationships with its customers and expand its product offering. Zolfo Cooper director Dan Coen