Morningstar | J Sainsbury Reports Soft 1Q Trading Update With Non-Food Dragging Growth Down
No-moat J Sainsbury reported its first-quarter trading update, with retail like-for-like sales growth (excluding fuel) at negative 1.6% broadly in line with our full-year expectations. Management said commented on a highly competitive and promotional market with an uncertain consumer outlook, while it left guidance unchanged. Given this mostly in-line print, we are not changing our GBX 273 fair value estimate for Sainsbury's.Like-for-like sales (excluding fuel) declined 1.6% (down 1% including fuel) in the first quarter, a noticeable underperformance versus Tesco's positive 0.8% (excluding Booker) and Morrisons' positive 0.2% (excluding Wholesale), with healthy growth in online and convenience (5.1% and 1.5%, respectively). The negative like for likes is partly a result of declines in general merchandise and clothing, categories where Sainsbury's has a larger exposure versus its peers because of Argos. This is in line with our initial negative assessment of the rationale behind Argos' deal, which we believed would add to the grocer's top- and bottom-line cyclicality in a post-Brexit environment, at a time when most competitors focus on the more differentiated food categories. Despite general merchandise and clothing categories decreasing 3.1% and 4.5% respectively, the company said it gained market share and is now the UK's fifth-largest retailer by volume in clothing (from sixth previously).
J Sainsbury will provide a full update on its progress at its Capital Markets day in September.
J Sainsbury is principally engaged in food, general merchandise and clothing retailing and financial services. Co. is organized into four operating segments: Retail (Food), which provides a range of food, including organic produce; Retail (General Merchandise and Clothing), which provides a range of products across home, clothing, technology and leisure; Financial Services (Sainsbury's Bank plc and Argos Financial Services entities), which provides products such as credit cards, insurance, travel money and personal loans; and Property Investment (The British Land Company PLC and Land Securities Group PLC joint ventures). At Mar 11 2017, Co. had 605 supermarkets and 806 convenience stores.
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