James Anstead, Barclays Capital
It is hard to fault Sainsbury’s 1H12/13 numbers, with EBIT and profit before tax either in-line or marginally ahead of consensus expectations. Given the downward recent pressure on earnings expectations at Tesco and Morrisons, it would be wrong to be too negative on Sainsbury given this solid delivery. However, with the share price having outperformed both of its UK peers by almost 40ppts this year, Sainsbury is understandably being held to higher standards. The company does not expect consensus FY12/13 PBT to change – currently it stands at £742mn – which is perhaps a little disappointing given the very strong sales growth that has been delivered in recent months. Sainsbury’s tone on the state of the market – and its own tough 2H comps – is a little cautious too. For these reasons we would not be surprised to see the share price down a little today, although the results are fundamentally robust and we still prefer Sainsbury within the UK given its strong top-line and relatively visible earnings.
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Darren Shirley, Shore Capital
Against a backdrop of still tight consumer spending and an increasingly competitive trading environment, including a market leader investing 80-90bp of margin in its price and service proposition, Sainsbury has reported a very solid set of interim results in our view, which are a little above Shore Capital’s expectations. Trading has proved robust through H1 with total (ex fuel) sales growth of 4.1% and LFL growth 1.7% the leader of the Big 4, sales growth in general merchandise remains robust with growth 3x faster than the food business. On the margin front we are encouraged that despite considerable investment elsewhere in the sector, Sainsbury has delivered a flat EBIT margin performance at 3.4%, benefiting from GBP60m of savings which is expected to increase to £100m for the full year. However, we must reiterate our concern that if market leader Tesco does begin to regain share from its margin investment programme, then Sainsbury remains the most vulnerable given the scale of trading overlap between the two groups.
Neil Saunders, Conlumino
Sainsbury’s continues to succeed in an increasingly competitive grocery environment that is characterised by low to negative volume growth. It is, therefore, all the more pleasing to note that such growth has been profitably delivered with an uplift in underlying profit of 5.4%. As is the case with many retailers who are succeeding during the downturn, much of Sainsbury’s success can be put down to the presence of a clear strategy and solid execution. This has helped to create a sense of energy and forward momentum within the business.
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By GlobalDataOn the strategy front, Sainsbury’s continues to successfully steer between delivering good quality food and promoting compelling value for money messages. Charting such a course sounds easy in theory but, as both Tesco and more recently Morrisons have found to their cost, it is difficult to execute well. Sainsbury’s has kept both plates spinning with initiatives such as the on-going own label refresh delivering growth and Brand Match helping to increase loyalty and prevent switching.
