Will Wednesday’s Q3 trading update reveal a fecund festive period for Sainsbury’s?
2017 wasn’t a vintage year for the ‘Big Four’ supermarket. Though it was on a broad upward trajectory in the first 5 months, hitting a one year high of £2.83 at the end of May, a rather dire back half left the stock at an 11 month nadir of £2.22 in late November. J Sainsbury (OTC:JSAIY) PLC now sits at a current trading price of £2.41.
November’s interim results did little to assuage Sainsbury’s autumn/winter decline. For the 28 weeks to 23rd September underlying pre-tax profit plunged 9% to £251 million, with the supermarket blaming a combination of price cutting, wage cost inflation and charges related to the consolidation of Argos.
The main takeaway, however, was its sales performance. Group revenue rose 17% to £16.3 billion, driven by the ‘full consolidation’ of Argos, with like-for-like sales (excluding fuel) rose 1.6%. And though that latter figure sounds impressive, it actually meant that Q1’s muscular 2.3% increase contracted to just 0.6% in Q2, a slowdown that soured what, on the surface AND considering the UK’s economic climate, was a pretty decent comparable sales reading.
Pre-empting investors’ unease over the figures, CEO Mike Coupe claimed that there was ‘nothing in the numbers’ to ‘give cause for concern about Christmas’. Well, it’s time for Coupe to keep his word. Investors are going to be expecting a rather sharp improvement on the second quarter’s 0.6% LFL growth, especially if Morrison (LON:MRW) continues to bear the fruit of David Potts’ leadership when it reports on Tuesday.
J Sainsbury PLC has a consensus rating of ‘Hold’ alongside an average target price of £2.62.
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