No room for complacency at Sainsbury's
4th July 2018 11:57
by Richard Hunter from interactive investor
The food retail landscape continues to evolve apace, but for the moment Sainsbury's is ticking the right strategic boxes, writes Richard Hunter, head of markets at interactive investor.
Sainsbury (J) is in relatively good shape at the moment, with an upbeat first-quarter outlook promising more positive times to come.
In particular, growth continues across most parts of the business, although at a slowing rate in grocery, but this is somewhat offset by the continuing supermarket shopping trends – online sales grew 7.3% and convenience stores by 3.6%.
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Furthermore, the wisdom of the Argos acquisition is becoming increasingly obvious, with online sales up 12%.
Meanwhile, £200 million of cost savings look achievable, and optimism surrounding the benefits of the Asda combination is self-evident.
Source: interactive investor Past performance is not a guide to future performance
There is, however, no room for complacency. Whilst in line with expectations, the slowdown in grocery and total sales growth is a continuation of a recent trend which needs to be addressed.
The unrelenting pressure in the sector from the discount supermarkets, let alone the recently announced Tesco tie-up with Carrefour, will continue to turn the screw. For Argos, despite its bright start as part of the group, the elephant in the room that is Amazon.com Inc will continue to cast a long shadow.
As Sainsbury's continues to expand its horizons, the dividend yield of 3.2% is somewhat pedestrian and the Asda deal will put additional strain, albeit containable, on its finances.
Despite these challenges, the more recent view of the company has sweetened, due largely to the Asda announcement, with the shares now having risen 28% over the last year, as compared to a 3% hike for the wider FTSE 100, and 34% over the last three months alone.
The landscape continues to evolve apace, but for the moment Sainsbury's is ticking the right strategic boxes and the general market view of the shares as a 'buy' is likely to remain in place.
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