The UK’s third-largest grocer reported solid annual results today (8 May), a year in which profits grew and it gained market share. Analysts largely welcomed the results.

Shore Capital analyst Clive Black

“Justin King has led Sainsbury to another year of steady progression in still challenging economic and sector conditions.

“Sainsbury has compounded clear thought and fresh ideas by good in-store execution, arguably market leadership in the mass market (‘Big Four’) delivery of fresh & chilled foods and effective execution of growth strands to the top-line at least through general merchandise, convenience (+GBP1.5bn sales) and online grocery (circa GBP1bn sales, circa 20% growth year-on-year). Accordingly, the group has outperformed its major peers and much of the market over the last seven years of consumer economic turmoil in the UK and so gained market share.

“Capital expenditure in the current year is again expected to be circa GBP1.1bn, pre the Bank acquisition, albeit Sainsbury stress a greater proportion of investment on higher return convenience stores. Whilst this is so, we believe that Sainsbury still would benefit from a more judicious approach to its annual outlay, one followed by most of its competitors.”

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers

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“There is no doubt that Sainsbury is making progress, but there is limited cause for excitement in these numbers. On a number of fronts, the general direction is positive – an improvement in operating margin, increased sales, robust contributions from online and convenience stores, and a progressive dividend policy, where the current yield of 3.9% is attractive. Even the outlook comments were relatively upbeat, although they did imply that the full force of the company’s turnaround is still some way off.

“The company’s aim to draw level with Asda as the UK’s second-largest supermarket is not yet quite in sight, with the sector remaining famously competitive. The notable rise in both the pension deficit and net debt over the period are a concern, whilst the lack of geographical diversification and the double-edged sword of the Qatari stake are further considerations.”

George Scott, consultant at industry analysts Conlumino

A key driver of Sainsbury’s recent success has been the development of its own-label architecture, which has afforded it authority to flex its offer in accordance to broadening consumer demands and capabilities. Its Basics and Taste the Difference sub-brands continue to boost the grocer’s appeal at either end of the market, while the re-launch of its mid-tier By Sainsbury’s sub-brand has appealed to shoppers seeking price competitive alternatives to branded products.

“The grocer’s convenience-led strategy has paid dividends, with sales growing 17% across this format, following the opening of a further 87 convenience stores during the year. Sainsbury’s also has compelling growth story to tell in other areas of its business. Annual online grocery sales are now approaching GBP1bn, growing nearly 20% over the year.

“On the horizon, Sainsbury’s faces both immediate and long-term challenges. Strong comparatives will undoubtedly provide a challenge, particularly considering the wider economic backdrop. Tesco’s resurgence is also a threat, as its own investment programme in own brand, store strategy and price competitiveness gathers pace. However, its proactive approach to evolving shopping trends leaves it ideally placed to make further market share gains.”