Sainsbury's (LON:SBRY) flash in the pan in the first-quarter—a 2.3% rise in underlying sales growth—has, almost predictably, fizzled out. Or put another way, although Argos gained market share in the half year, according to Thursday morning comments by CEO Mike Coupe, it was called on to do more heavy lifting than was possible to offset parlous growth at the supermarket. A
dditionally, whilst ahead of pessimistic forecasts, £251m interim profits were 9% lower on the year, a deterioration of the 8.2% pre-tax decline seen at the last full year. Sainsbury’s, like almost all high street businesses is caught in a pincer of rising input costs and falling consumer real wages growth. It is keeping prices low, but, unlike chief rivals Tesco (LON:TSCO) and Morrisons, there’s something wrong with its mix of store prices and supplier agreements, because the UK No. 1 and No. 3 in market share terms, are reporting definitively firmer underlying sales growth, whilst Sainsbury’s key sales retreat.
The lack of an upturn in Sainsbury’s worsening metrics in H1 pushes investors back on its long-term faults. These include profit growth below the FTSE average, revenue growth barely above inflation, a long-term capex profile that continues to exceed profits and liabilities (including pensions) that remain stubbornly demanding. Mike Coupe is “confident” in the group’s “Christmas offer”. It will need to be stellar to prevent Sainsbury’s 8% share price slide this year from worsening, which seems all but inevitable on the strength of the group’s performance so far.
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