Proactive Investors - J Sainsbury (OTC:JSAIY) PLC attempt to keep prices low will eat away at margins, according to Credit Suisse (SIX:CSGN), which has kept its 'underperform' rating, but raised its target price to 200p from 184p,
Credit Suisse predicts somewhere between a 10 to 20 basis point reduction in retail operating margin (0.1-0.2%) over the next three years based on recent Kantar data and Sainsbury’s latest promotion, where it promised an additional £50mln 'investment', taking its current commitment to £550mln.
Additionally, analysts at the Swiss bank also believe the grocer's exposure to general merchandise and clothing will hurt given consumer discretionary spending trends.
Cost-saving benefits, Credit Suisse said, are also finite and as a result, “we expect margins will remain lower for longer.”
Analysts at the bank prefer Tesco (LON:TSCO) due to its higher scale and margins, market-share dynamics and high-quality discretionary exposure.