What's to cheer in Sainsbury's Christmas results?

Christmas came late for Sainsbury's and the food retailers don't have it easy. Richard Hunter, head of markets at interactive investor, picks over the grocer's festive figures.

The British aisles are still a source of difficulty for grocers generally and Sainsbury's (LSE:SBRY) has provided a third-quarter update which is less punchy than had been expected.

The headline sales figures are not pretty. Overall sales declined in the quarter – like-for-like retail sales fell 1.1% in the 15 weeks to 15 January - as compared to a growth figure in the corresponding period last year and, equally, light of analyst expectations. 

In particular, the General Merchandise unit came under particular pressure – down 2.3% - with the company's decision not to join the promotional party, especially around Black Friday, having an inevitable impact. 

In addition, the ferocity of competition in the sector is squeezing margins generally and Sainsbury's is no exception. From a strategic perspective, there was no mention of the proposed Asda merger – which is by no means a done deal – which has also mildly unsettled investors looking for a positive update.

Source: TradingView  Past performance is not a guide to future performance

All is certainly not lost, however. Despite its relatively stuttering performance over the quarter as a whole. Argos had a strong run-in over the Christmas weeks and remains an inspired acquisition. The increasingly important channels of online and convenience continue to post strong sales growth of 6% and 3% respectively, while the group’s planned cost savings of £200 million remain on track. 

In the meantime, grocery sales held up relatively well and, from an investment perspective, the projected dividend yield of 4.1% is an attraction to income-seeking investors.

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Although the shares have been faltering of late, with a 14.5% decline in the last three months, taking a longer view the situation is entirely different. The shares have risen 11% over the last year, which compares to a 11.2% drop for the wider FTSE 100, although much of that rise seems to be factoring in hopes that the Asda deal will go through. 

With that particular box yet to be ticked and conditions remaining challenging, the market consensus of the shares as a 'hold' is likely to remain intact for the time being.