Sainsbury's Q3 Top-Line Miss Due to Clothing and Argos Offset by Profit Upgrade; Fairly Valued

J Sainsbury reported its third-quarter and Christmas update with like-for-like sales growth (excluding fuel) down 4.5% (up 0.6% including fuel), lower than company-compiled consensus of negative 2.6%. The lower-than-expected top-line performance was driven by clothing sales (down 2.7%, or down 1.7% on a two-year basis) and the general merchandise category including Argos, down 16% and 16.1%, respectively. The grocery performance slowdown was largely expected as the benefit from increased food-at-home consumption trends starts to wane (down 1.1% in the third quarter versus up 7.4% in the same period last year and up 6.6% on a two-year basis). The online sales growth slowdown was also expected, declining 16.5% year on year (up 92% on a two-year basis), with productivity of online fulfilment and densities improving; picking rates, drop densities, and basket size were higher year on year by 4%, 2%, and 6%, respectively.