Today Sainsbury’s (SBRY) announced a 1.1% like for like retail sales fall, excluding fuel, for the 16 weeks to 24 September 2016.
Here’s how the city reacted:
John Ibbotson, director of the retail consultancy Retail Vision said: “For two years, Sainsbury’s defied the economic gravity of Britain’s supermarket shootout.
“The brand has come down to earth with a bump, with like-for-like sales slumping for the second quarter in a row. Only the rudderless Asda is losing sales at a faster rate.”
He added: “The speed with which the tables have turned says much about the intensity of the competition in the market. A year ago Sainsbury’s was congratulating itself for retaining its middle-class client base while the German discounters decimated their rivals at Tesco and Morrisons.
“Sainsbury’s response - the abolition of multi-buy promotions and the introduction of simpler pricing - looks distinctly underwhelming in the current brutal market conditions.”
Ibbotson added that although Sainsbury’s acquisition of Argos “dragged on” and the resulting uncertainty of the deal “hurt staff morale”, “Argos should boost Sainsbury’s bottom line in the short-term as well as improve its internet offer and logistics capability.”
He concluded: “Integrating the two firms will be time-consuming and distracting, and in the current environment Sainsbury’s cannot afford to take its eye off its core grocery business, even for a second.”
Julie Palmer, partner and retail expert at Begbies Traynor, reacted similarly. She said: “Sainsbury’s has failed to turn around its weak sales performance, in stark contrast to the recent momentum seen by two of its largest competitors, WM Morrisons and Tesco”.
Commenting on the Argos deal, Palmer said: “Over the next six months, investors will be keeping a close eye on the supermarket chain to see if the £1.4 billion deal can deliver the significant cost savings and diversified shopping experience that Sainsbury’s hopes it will.”
Palmer added: “Sainsbury’s will be hoping that its growing non–food retail offering and same-day delivery trial will prove successful, providing a much needed edge over the competition.”
Analysts at Jefferies thought the results reflected “considerable investor scepticism of the rationale behind the Argos acquisition.”
“Considering that SBRY still targets Argos to deliver, at maturity of integration, double-digit earnings accretion and low to mid-teens ROCE, it follows that such an outcome is considered over-optimistic.”
“Improving trading standards at the latter and an increased Southern expansion focus by discounters are likely key factors behind the JS underperformance. Argos saw better-than-expected Q2 LFL sales of +2.3% (JEFe +0.5%), with industry data suggesting market conditions have been rather helpful this summer in some of Argos’s key product categories.”
Analysts Clive Black and Darren Shirley from Shore Capital held a slightly different view on the performance of the Argos deal: “The Argos acquisition was only completed on 2nd September. Argos achieved LFL sales growth of 2.3% in Q2, which we deem to be commendable and encouraging.”
Yet it was the decision from the CMA to “wave through the Argos acquisition without a bat of an eye lid and yet take the sale of Sainsbury Pharmacy to a phase II” that Black and Shirley called out. “The inconsistency is, quite frankly, nuts and a national bureaucratic scandal,” they said.
The analysts pointed out that Sainsbury’s general merchandise growth of 4.0% in Q2 implied a “somewhat weaker grocery performance” than convenience sales, which grew by 7%, and online grocery sales (8%).
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