Sainsbury’s has returned to profit after posting a £72m loss last year but underlying profits fell 13.8% amid a “competitive” market and “sustained food price deflation”. Here’s how leading City and retail analysts reacted.
Shore Capital said the underlying performance was modestly ahead of expectations, and the retailer was “doing the right things” by lowering prices and simplifying its offer. But it noted Sainsbury’s update was relatively light on detail about the Home Retail Group deal and said “we harbour concerns that Sainsbury’s may be complicating its business through the Argos acquisition just as its largest competitor, Tesco, is getting its act together. We remain marginally more positive than negative on Argos; however, the deal is certainly not without significant risk in our view.
Arnaud Joly, analyst at Société Générale, said the results were “resilient” and “better than expected”. This showed management had “the right strategy, with strong differentiation (high quality of products and services in store) and targeted price investment. But the lack of precise management guidance for the year ahead was a big question mark, he suggested. “Regarding the proposed acquisition of Home Retail Group, management indicated that the deal could take place in the third quarter of the calendar year, at which point it will give further guidance on how the group will account for and report on the acquisition.”
Phil Dorrell, partner at Retail Remedy, said Sainsbury’s had a lot on its plate but was managing to take challenges from the discounters and online in its stride. ”Coupe has proven both bold and visionary in his targeting of the HRG and we think that their are synergies worth having if he can make it happen. It will truly test his teams strength in depth but we suspect they are on to a good thing.” But he added more changes in the vein of the discontinuation of Brand Match were inevitable, and Sainsbury’s management had to keep a close eye on a recovering Tesco. ”The bigger concern is what Tesco’s next move will be. It has started to show signs of recovery and by accepting Brand Match vouchers, it is showing it is ready for a fight. Sainsburys is more likely to rise above cheap tactics but it had better keep an eye on Tesco’s next move. Complacency costs sales.”
Danielle Pinnington, MD at Shoppercentric, said Sainsbury’s efforts to simplify its offer by reducing “promotional clutter” were a positive step. “The trouble is that the context continues to change rapidly, with Tesco and Morrisons appearing to get to grips with their issues, and the discounters continuing to play a strong hand.”
Catherine Shuttleworth, CEO at Savvy, said Sainsbury’s had delivered a “good overall performance” in a challenging market. “Growth factors are still convenience and online, and the TU clothing brand is now number six in the UK. It seems like they have a very clear strategic plan ahead for the advantages of the Argos takeover that recognise the changing shopper and the insatiable desire for convenient ways to shop and collect. It is clearly not just tacitly understood by Mike [Coupe] and his team, but embraced and embedded in their thinking which has to provide significant advantage moving forwards. The £100m bonus to 126k employees should give the business positive onwards momentum.”
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