Company Reports

J Sainsbury reported preliminary results for the 52 weeks ended March 2, 2024, with like-for-like sales growth of 7.5%, excluding fuel sales (3.8% including fuel sales). Grocery sales growth was robust at 9.4% year over year while clothing sales growth was negative 6.4% (from down 1.7% in the third quarter and negative 6% during the Christmas period). Meanwhile, Argos sales experienced a marginal drop of 0.5% overall, yet when the impact of the Argos closures in the Republic of Ireland is excluded, sales actually improved by 1.6%.

Sainsbury's outlined its "Next Level Sainsbury's" strategy in a recent update, ahead of the company's Capital Markets Day, emphasizing its commitment to medium-term growth through fiscal 2027. The plan includes generating over GBP 1.6 billion in retail free cash flow (versus GBP 1.9 billion in our model over the next three years to fiscal 2027), investing GBP 800 million-GBP 850 million annually in capital expenditures (versus GBP 730 million in our model), and saving GBP 1 billion in costs by incurring GBP 150 million in one-off cash costs. Additionally, the strategy aims for retail operating profit growth each year, food volume growth ahead of the market, higher customer satisfaction, colleague engagement, and a commitment to environmental and social goals. The company also plans to enhance fresh food choices in stores and expects significant grocery volume gains from this initiative. On a more positive note, the grocer announced its first share buyback program and a progressive dividend policy, with GBP 200 million earmarked for share buybacks in fiscal 2025. The focus on expanding the food range in 180 stores, reallocating space from general merchandise to food, and opening 75 new Sainsbury's Local convenience stores underscores Sainsbury's strategy to double-down on serving consumer needs and preferences better in an increasingly competitive U.K. grocery market. In addition, the transformation of Argos and a new direction for financial services, moving toward third-party provision, is a strategic shift for the group. The higher capital expenditure guidance, which will slightly impact our free cash flow estimates, is a negative surprise while the overall financial outlook remains unchanged. We don't expect to materially change our GBX 301 fair value estimate for Sainsbury's after accounting for slightly lower free cash flow estimates in the midterm due to the step-up in capital expenditures. Shares are fairly valued.

J Sainsbury reported a fiscal third-quarter trading update with like-for-like sales growth of 7.4%, excluding fuel sales. Grocery sales growth was robust at 9.3% year over year—Christmas grocery sales rose 8.6%, with stronger volume growth offsetting lower inflation. Clothing sales growth continued to decline, albeit at an improved rate, being negative 1.7% in the quarter and negative 6% during the Christmas period. As a comparison, clothing sales growth was negative 8.4% in the first half and down 14.6% in the second quarter. Meanwhile, Argos sales declined 0.9%, from being down 2.6% in the second quarter.

While Sainsbury’s has historically distinguished itself from its peers with a higher-quality (premium-priced) food offering, it has been underperforming its peers due to a lack of focus and responsiveness to an increasingly value-oriented U.K. consumer base and a below-average value perception. Recent investments in lower prices have reverted trends with the grocer now in a solid position in the very competitive U.K. grocery market.

J Sainsbury reported first-half fiscal 2024 results with like-for-like sales growth of 7.7%, excluding fuel sales. Grocery sales growth was robust at 10.1% (8.9% in the second quarter), clothing continued to underperform (negative 8.4% in the first half and down 14.6% in the second quarter), and Argos was up 1.7% (down 2.6% in the second quarter). Grocery performance was particularly strong despite healthy comps last year (up 3.8% in the second quarter of 2023). Despite the lower growth number in the quarter (up 3.3% excluding the impact of the planned closure of Argos in the Republic of Ireland), Argos' performance held up well, reflecting a continuation of market share gains. Sainsbury's investments in low prices have never been higher, which we believe along with Aldi's price match scheme on roughly 400 high-volume fresh food products, have been key drivers in enhancing the value perception gap with competitors. The grocer has been investing aggressively (GBP 118 million) in targeted price cuts (consistently inflating behind key competitors). We believe Sainsbury's current strategy and execution, along with its already strong online capabilities, place the grocer in a strong position in an increasingly competitive U.K. grocery market. The grocer is reporting consistent growing volumes and market share gains across the grocery business (gaining volume from all key competitors) and the general merchandise market with Argos. Given strong performance, management upgraded guidance for underlying profit before tax to GBP 670 million-GBP 700 million versus GBP 640 million-GBP 700 million before and GBP 683 million in our model in fiscal 2024. We maintain our GBX 278 fair value estimate and no-moat rating. Shares are fairly valued.

J Sainsbury reported a first-quarter fiscal 2024 trading update with like-for-like sales growth up 9.8%, excluding fuel sales. Grocery sales growth was 11%, clothing was negative 3.7%, and Argos was up 5.1%. Grocery performance continued to recover sequentially (up 7.4% in fourth-quarter 2023, up 5.6% in third-quarter 2023, and up 1.2% in second-quarter 2023), along with general merchandise sales aided by Argos. Argos' sales growth held up well, up 5.1% versus 9.3%/4.5%/1.6% in the fourth/third/second quarters and down almost 21% in first-quarter fiscal 2022. Sainsbury's price lock commitment covers over 2,000 everyday products, which we believe along with Aldi's price match scheme on roughly 300 high-volume fresh food products, is central to enhancing the value perception gap with competitors. The grocer has also been investing aggressively (GBP 60 million) since March in targeted price cuts (versus price increases for the market, according to Sainsbury's) across more than 120 essentials like bread, milk, and pasta. We believe Sainsbury's current strategy and execution, along with its already strong online capabilities, place the grocer in a strong position in an increasingly competitive U.K. grocery market. The grocer is already reporting a return to positive volume growth and market share gains across the grocery business and general merchandise market with Argos. Guidance for underlying profit before tax of GBP 640 million-GBP 700 million versus GBP 683 million in our model in fiscal 2024 remains unchanged. We don't expect to change our GBX 278 fair value estimate and no moat rating. Shares are fairly valued.

J Sainsbury's reported fourth-quarter fiscal 2023 results with like-for-like sales growth up 5.9%, including fuel sales (up 7.8% excluding fuel sales). This compares with 7.6%/7.8% like-for-like sales growth excluding fuel sales in U.K./Republic of Ireland, respectively, for Tesco in the same period. Grocery sales growth was 7.4%, with clothing at minus 1.9% and Argos recovering strongly, up 9.3%. Grocery performance continued to recover sequentially (up 5.6% in the third quarter and up 1.2% in the second quarter), along with general merchandise sales aided by Argos. Argos' sales growth was particularly pleasing, up 9.3% versus 4.5%/1.6% in the third/second quarters and down almost 21% in the first quarter of fiscal 2022. Underlying profit before tax came in at the upper end of guidance range at GBP 690 million, broadly in line with our estimates (GBP 683 million in our model). Sainsbury's Price Lock commitment covers over 2,000 everyday products, which we believe, along with Aldi's price match scheme on now 300 (at the end of December) high-volume fresh food products, is central to enhancing the value perception gap with competitors. This has been a strong GBP 560 million investment for Sainsbury's over the last two years and driven by the grocer's cost-savings programme. We believe Sainsbury's current strategy and execution, along with its already strong online capabilities, place the grocer in a strong position in an increasingly competitive U.K. grocery market. Management introduced cautious guidance for an underlying profit before tax of GBP 640 million-GBP 700 million versus GBP 702 million in our model in fiscal 2024. We don't expect to materially change our GBX 278 fair value estimate and no-moat rating. Shares are fairly valued.

While Sainsbury’s has historically distinguished itself from its peers with a higher-quality (premium-priced) food offering, it has been underperforming peers due to a lack of focus and responsiveness to an increasingly value-oriented U.K. consumer base.

J Sainsbury's reported third-quarter fiscal 2023 results with like-for-like sales growth up 5.9% , aided by grocery sales growth at 5.6%, with clothing at 1.3% and general merchandise at 4.6% (Argos up 4.5%). Although the grocery performance sequential recovery was largely expected (up 3.8% in the second quarter and down 4% in the first quarter), it was the nonfood sales that slightly surprised on the upside with clothing sales up 1.3% versus down 0.2% in the second quarter and down 10.1% in the first quarter and gross merchandise sales up 4.6% versus up 1.2% in the second quarter and down 11.2% in the first quarter. Argos' sales growth was particularly pleasing, up 4.5% versus up 1.6% in the second quarter and down 10.5% in the first quarter. This is on top of a confident outlook by management, commenting on strong trading momentum in the festive period of Christmas and "volume market share gains." Sainsbury's Price Lock commitment covers over 2,000 everyday products, which we believe along with Aldi's price match scheme on now 300 (from 240 in the previous quarter) high-volume fresh food products is central to enhancing the value perception gap with competitors. We believe its current strategy and execution, along with its already strong online capabilities, place Sainsbury's in a prime position in the increasingly competitive U.K. grocery market. Management specialised guidance toward the upper end of the range for an underlying profit before tax of GBP 630 million-GBP 690 million versus GBP 706 million in our model in fiscal 2023. We don't expect to change our GBX 278 fair value estimate and no moat rating.

J Sainsbury reported first-half fiscal 2023 results with like-for-like sales growth down 0.8% (up 4.9% including fuel) with second-quarter LFL sales growth up 3.7% (up 7.7% including fuel). Although the grocery performance sequential recovery was largely expected (down 4% in the first quarter), it was the nonfood sales that surprised on the upside with clothing sales slightly down 0.2% (versus down 10.1% in the first quarter) and gross merchandise sales up about 1.2% (versus down 11.2% in the first quarter). Argos' sales growth was particularly pleasing, up 1.6% from down 10.5% in the first quarter. This is on top of a confident outlook by management, commenting on strong trading momentum at the beginning of the second half and "volume market share gains." Sainsbury's Price Lock commitment covers over 2,000 everyday product, and the grocer said that it recently increased the number of own-brand products by 20% as more customers switch to own-brand products, which we believe along with Aldi's price match scheme on 240 (stable from the previous quarter) high-volume fresh food products is central to enhancing the value perception gap with competitors. We believe its current strategy and execution, along with its already strong online capabilities, place Sainsbury in a prime position in the increasingly competitive U.K. grocery market. Management reiterated guidance of underlying profit before tax of GBP 630 million-GBP 690 million versus GBP 706 million in our model in fiscal 2023. We don't expect to change our GBX 278 fair value estimate and no-moat rating.

While Sainsbury’s has historically distinguished itself from its peers with a higher-quality (premium-priced) food offering, it has been underperforming peers due to a lack of focus and responsiveness to an increasingly value-orientated U.K. consumer base. After the rejection of Sainsbury's proposed merger with Asda, the supermarket is in need of a turnaround strategy to regain market share and improve its price position versus competition. Our thesis after the rejections had been that Sainsbury’s could still regain competitiveness and we saw multiple paths ahead. First, through a new partnership/merger with a smaller grocer in the U.K., which could generate the necessary cost savings to invest back in prices. Alternatively, the group could proceed to a 2015 Tesco-like restructuring through an aggressive reassessment of the structural costs of its business. Sainsbury's recent restructuring plans confirmed the latter.

J Sainsbury reported a first-quarter fiscal 2023 trading update with like-for-like sales growth down 4% (up 2.9% including fuel). The grocery performance slowdown is largely expected as the benefit from increased food-at-home consumption trends started to wane, down 2.4% in the first quarter, but up 8.7% versus precoronavirus trading (first-quarter fiscal 2020). In other categories, fuel sales grew 48.3%, while clothing sales were down 10.1% with gross merchandise sales down about 11.2%, all a result of normalizing patterns after the economy reopened, higher fuel prices, as well as a strategic decision to rebalance space allocation in stores and exit the entertainment category. Argos' sales decline cadence is gradually improving from a 19% drop in the first five weeks to a 7% drop in the last 11 weeks of the quarter. That said, we do expect a slowdown in discretionary spending to hit general merchandise sales and Argos in the second half of the year. In groceries, online sales are 94% above prepandemic levels with Sainsbury's "holding on to customers gained during the pandemic."

J Sainsbury reported fiscal 2022 results with like-for-like sales growth down 2.3% (up 3.6% including fuel) and underlying profit before taxes of GBP 730 million versus GBP 727 million for company-compiled consensus and GBP 673 million in our model. The grocery performance slowdown was largely expected as the benefit from increased food-at-home consumption trends started to wane, down 0.2% for the year but up 7.6% on a two-year basis. In other categories, clothing and fuel grew 12.7% and 60%, respectively, with gross merchandise sales down about 12%, all the result of normalization patterns from the reopening of the economy. Notably, groceries online now account for 17% of overall grocery sales, with 39% of the group's sales originating in the digital channels.

We don't expect to change our fair value estimates for our European food value chain coverage list due to the recent Russia-Ukraine conflict.

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.

J Sainsbury reported half-year results with like-for-like sales growth (excluding fuel) up 0.3% (6.1% including fuel). Growth was driven by grocery (up 0.8%, up 9.1% on a two-year basis) and clothing (up 9.2%, up 9.1% on a two-year basis) sales while the general merchandise category and Argos were down 5.8% and 7.3%, respectively. Grocery performance slowdown was largely expected as the benefit from increased food-at-home consumption trends starts to normalise (up 0.8% in the second quarter versus 5.1% same period last year). Online sales continue to be particularly strong, growing 13% year on year (up 128% on a two-year basis), with productivity of online fulfilment improving; picking rates and basket size were higher than two years ago. More important, Sainsbury's said that it gained volume share versus the broad grocery market. Sainsbury's latest Price Lock commitment covers over 2,500 everyday products, which we believe along with the Aldi price match scheme is central to improving the value perception gap with competitors. After the failed merger with Asda, we had highlighted the need for Sainsbury's to proceed to a "Tesco-like" restructuring, reinvesting the savings to its offering through price cuts. We believe the current strategy and execution along with the grocer's already strong online capabilities place Sainsbury in a prime position to compete in the increasingly competitive U.K. grocery market.

While Sainsbury’s has historically distinguished itself from its peers with a higher-quality (premium-priced) food offering, it has been underperforming peers due to a lack of focus and responsiveness to an increasingly value-orientated U.K. consumer base. After the rejection of Sainsbury's proposed merger with Asda, the supermarket is in need of a turnaround strategy to regain market share and improve its price position versus competition. Our thesis after the rejections had been that Sainsbury’s could still regain competitiveness and we saw multiple paths ahead. First, through a new partnership/merger with a smaller grocer in the U.K., which could generate the necessary cost savings to invest back in prices. Alternatively, the group could proceed to a 2015 Tesco-like restructuring through an aggressive reassessment of the structural costs of its business. Sainsbury's recent restructuring plans confirmed the latter.

According to the Sunday Times, private equity companies are taking an exploratory look at Sainsbury's, with Apollo specifically named in the article as one of the players interested in the supermarket industry. Apollo is not foreign to the United Kingdom grocery segment, as it was previously outbid for Asda, which ended up being acquired by private equity firm TDR Capital and Issa brothers (deal closed in February 2021). It is also reported (according to the same article) to be considering joining Fortress Group in its bidding for Morrisons (see our previous notes). At the time of writing, Sainsbury's shares are trading up as high as 14% at about GBX 335.00 per share and into 2-star territory (from 3-stars before the release of the article). We maintain our GBX 262.00 fair value estimate as we opt not to include a potential acquisition of the grocer/privatization in our base-case scenario. Despite the fact that our thesis on the grocery segment (large, multichannel players that are best-positioned online) has been constructive since the coronavirus pandemic erupted and we favored Sainsbury's as the only grocer in our list with the best combination of market position/outlook and valuation support, shares have outperformed year to date (up about 50% including the Aug. 23 price action versus up less than 20% for a group of European grocers we follow, excluding Morrisons), and thus we would advise investors to wait for a better entry point.

J Sainsbury reported first-quarter sales with like-for-like sales growth (excluding fuel) up 1.6% (two-year growth 10.3%). Good growth performance was driven by grocery (up 0.8%, up 11.3% on a two-year period) and clothing sales (up 57.6%, up 15.5% on a two-year basis) while the general merchandise category and Argos were down 1.4% and 3.7%, respectively. Grocery performance slowdown was largely expected as the benefit from increased food-at-home consumption trends started to normalise (up 7.1% in the fourth quarter). Online sales continue to be particularly strong, growing 29% in the first quarter (up 142% on a two-year basis) with productivity of online fulfilment improving (item picking rates (IPH) increased 42% year on year and 11% on a two-year basis). More importantly, Sainsbury's said that it gained both volume and value share versus superstore competitors and broad grocery market. Sainsbury's latest Price Lock commitment covers over 2,300 everyday products with the grocer now committing to an additional GBP 50 million of price reductions across 60 everyday essentials, which we find particularly pleasing. After the failed merger with Asda, we had highlighted the need for Sainsbury's to proceed to a "Tesco-like" restructuring, investing back the savings to its offering through price cuts. We believe the current strategy and execution along with the grocer's already strong online capabilities places Sainsbury in a prime position to compete in the increasingly competitive U.K. grocery market. The grocer upgraded guidance for underlying profit before tax to be at least GBP 660 million (versus at least at the 2020 level or GBP 586 million and GBP 595 million in our model). We do not expect to materially change our fair value estimate after incorporating slightly higher guidance in our model. Shares trade in 3-star territory.