Sainsbury’s has booked another quarter of like-for-like sales gains – bucking the downward trends in the wider UK grocery market and outperforming its peers. However, LFL growth has slowed significantly and management has sounded a downbeat note on the consumer outlook. Here is the City’s take on Sainsbury’s first quarter results.

Joseph Robinson, Conlumino

“Sainsbury’s is getting a number of things very right. Most notable has been investment into own-label architecture, which has afforded it authority to flex its offer in accordance to broadening consumer demands and capabilities. Indeed, both its premium Taste the Difference and mid-tier by Sainsbury’s sub-brands achieved strong growth during this period. This private label investment has been complemented strongly by clever, targeted promotional activity, with its Brand Match scheme being supported by more creative campaigns such as ‘Feed Your Family’ and targeted promotions such through Nectar and via coupon-at-till.  Collectively, this well-aligned own label and promotional activity is somewhat insulating Sainsbury’s in a climate where consumer loyalty is fickle and the hard discounters are excelling. At the same time, Sainsbury’s continues to display pro-activity in capitalising on opportunities specific to the business and wider trends in the grocery market.”

Cantor Research

“While Sainsbury’s has added another positive LFL sales quarter, making 34 since Q4-05, it now seems that the core superstore operations could be seeing LFL’s falling as convenience grows sales at +20% with strong LFL’s. The weaker superstore sales line is being partly offset by lower manufacturer input costs and a relatively high level of average item price inflation helping gross margins. This may support trading margins but pressure from lower sales volumes will mean more cost savings are required if margins are to remain stable.”

Richard Hunter, Hargreaves Lansdown

“The very fact that the period represents the 34th consecutive quarter of growth is a testament to the company’s resilience during what has been a difficult economic time. It is also repositioning itself to benefit from the changing consumer shopping pattern, and reported 20% sales growth through its convenience stores and 16% growth online. It also managed to report progress in non-food sales, unlike some of its competitors, whilst from an investment perspective the dividend yield of 4.5% is supportive. Rather less positively, the company remains downbeat on economic prospects generally, the previously announced rises in net debt and the pensions deficit remain concerns and this fiercely competitive sector shows no signs of easing.”

Clive Black, Shore Capital

“The magnitude of the slowdown in trading momentum from Sainsbury’s in its Q4 (when LFL sales were 3.6%) is startling to our minds. On a two year basis Sainsbury’s Q1 LFL sales are 2.2% vs. 6.2% in Q4. As such, the differential in trading performance between Sainsbury and Tesco quarter-on-quarter, noting the different time periods covered, has narrowed materially. Whilst Tesco’s Q1 update was poor, this update from Sainsbury perhaps makes it appear a little less galling, noting as we do that ‘JS’ is still gaining market share.”