Sainsbury (SBRY) Results

Supermarket and other goods retailer Sainsbury issued their preliminary results this morning. Growth in everything except profits and dividends is what one might say from a quick read of the data. Lots of positive noises about out-performance in the markets where Sainsbury and newly acquired business Argos compete. Group revenue up 11.6% due to the acquisition, but earnings per share down by 27% and the dividend has been cut. The latter decline was forecast by analysts but the share price has fallen by 5% on the day. Perhaps it was the rather bland “Outlook” statement that spooked investors, or they were hoping for more. When one says things like “The market remains competitive…” is that really saying anything we did not already know? When has the grocery sector not been competitive anyway?

But profits are due to fall in the next six months in comparison with the last due to rising costs according to CEO Mike Coupe.

The announcement also said: “…we continue to innovate in quality and to invest in price”. I think the latter means they are cutting prices but what does the former mean? Are they improving product quality or changing it in some other way?

Whoever wrote this surely needs to take some lessons in how to write announcements that are clear, concise and to the point.

But there is quite a lot of positive news. General Merchandise and Clothing in Sainsbury grew and Argos grew sales by 4.1%.

Digital sales continue to grow and it said 53% of sales were now made online. However, having used the Sainsbury on-line service today (a rare occasion), I can’t say I found the site very exciting. Bland presentation and limited product range. Even as a very small shareholder in the company, one does need to experience the customer proposition occasionally.

In conclusion, the company seems to be heading in the right direction, but clearly the price competition in the traditional supermarket segment from low cost competitors is still proving to be a headwind. Like-for-like sales were down again this year. As readers may have noticed, our household food bill has actually declined in the last couple of years, and that’s not just down to more dieting or more eating out. However food price inflation is increasing so that might help food retailers because they apparently made hay when prices were constantly rising as folks just did not notice that profit margins of retailers were also rising. However, price inflation on general merchandise and clothing may reduce demand as consumers reduce expenditure.

So it’s a mixed report, or still a “work in progress” so far as this company is concerned in relation to revitalising the business and achieving some growth. It will be interesting to see what retail analysts and the media make of this announcement in due course.

Roger Lawson


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