Sainsbury’s posted like-for-like sales grew 0.9% and total sales advanced 3.3% for the first half of the year but analysts welcome the figures but believe the grocer still has some work to do.

Management expects to exit the fourth quarter with 4% inflation: we think that this is highly optimistic and it could be higher than 5%. That puts extreme pressure on volumes, as customers simply haven’t got the cash to cope with inflation of that quantum. Lower volumes put pressure on operating ratios and that suggests that Sainsbury’s will do well to deliver the promised unchanged operating profit margin this year. We mustn’t be churlish here, though, as Sainsbury will be the only quoted food retailer that reports an increase in UK operating profits this year, and we’d have a small wager that it will be the only one to do so next year as well - Jonathan Pritchard, Oriel Securities

A proactive strengthening of its value credentials has underpinned Sainsbury’s widening appeal. To this end, brand match is proving popular, while it also continues to leverage Nectar for more targeted promotions. Indeed, since the outset of the downturn, Sainsburys’ utilisation of promotional activity has been skilful; with campaigns such as feed your family and brand match representing targeted, considered and sustainable investment. Its presence in non-food – where it is markedly less mature in certain areas comparative to its peers – continues to be boosted by new space, with the grocer actively looking to extend superstores. Clothing, in particular, is an area where it is gaining further traction, with widening instore offers helping it to achieve its largest ever schoolwear sales during this period. Above all, the Sainsbury’s proposition is proving immensely relevant to the British consumer. The alliance of own-label development and targeted promotions is strengthening value credential, extending the grocer’s appeal among a wider range of consumers, while at the same time also helping it to maintain its traditionally strong quality credentials – Joseph Robinson, Conlumino

The food retail sector is currently un-investable and management strategy is unsustainable. Therefore, we expect to see significant strategic changes over the next 12 months, which should result in a substantial re-rating of the sector. The space race is over and operators need to focus investment online. Next, they need to target substantial improvements to ROCE and significant and recurring returns of capital to shareholders - Philip Dorgan, Panmure Gordon

The market is still overly focused on short term trading, in our view, whereas we stand back and look at the overall industry dynamics. Sainsbury’s is a relative winner, but this is an industry that is ex-growth and one with declining long run returns. Yet the companies continue to pursue the same strategies as when this was a growth industry. There was a time, not too long ago, that if a retailer was posting the sales performance Sainsbury has, with an underlying decline in volumes, the market would have been very concerned. Sainsbury may be a relative winner at the moment, but a relative winner can still be a major loser in absolute terms.The internet and convenience are the main growth drivers in the industry and both these channels are winning share from traditional stores. But both these channels are less profitable than traditional stores, so we are seeing the industry become more inefficient as higher margin sales are becoming lower margin sales - Dave McCarthy, Investec