“Having your shares trade at the same level as they did 32 years ago feels like scant reward for helping to keep the nation fed, watered, clothed, clean and even entertained during a period of great difficulty but that seems to be all the thanks that shareholders are giving to Sainsbury and its new chief executive Simon Roberts,” says Russ Mould, AJ Bell Investment Director.
Source: Refinitiv data
“This is despite like-for-like sales growth of 8.2% year-on-year in the first quarter and total sales growth of 8.5%, excluding fuel, with Argos’ 10.7% top-line increase helping to justify its acquisition during the tenure of previous boss, Mike Coupe, back in 2016.
Source: Company accounts
“Such apparent ingratitude can be pinned on the view that the boost to sales may only be temporary, should the UK’s bid to gradually ease its lockdown prove successful and consumers feel able to go to work and take lunch at an office desk or eat out in pubs and restaurants again and children return to school full-time in the autumn.
“In addition, providing the additional goods has come at great cost, and therefore little additional financial benefit to Sainsbury, at least in the near term.
“While there may be benefits to Sainsbury’s reputation and brand, and thus customer loyalty, over the long term, Mr Roberts has quantified the additional costs to the company related to COVID-19 at some £500 million.
“This relates to staff and logistics, increased discounting to shift excess clothing stock and also delays to ongoing productivity programmes. The company has not taken up Government support in the form of the furlough schemes or delayed VAT payments, although Sainsbury has accepted £450 million in business rates relief for the year. The rate relief and the extra sales will help to offset the extra costs but not much more.
“As a result, overall earnings estimates for Sainsbury’s financial year to March 2021 have actually sagged during the pandemic.
Source: Sharecast, consensus analysts’ forecasts
“This could lead investors back to thinking about what Sainsbury’s prospects are like if, as and when trading returns to more normal patterns, should the pandemic release its grip.
“Mr Roberts’ predecessor, Mike Coupe, ultimately failed to inject any fresh earnings momentum into the business during his near six-year tenure, despite a ferocious pace of activity, which included the acquisition of Argos, the dissolution of the inherited partnership with Netto and a failed plan to merge with Asda.
Source: Company accounts, Sharecast, analysts' consensus forecasts. Fiscal year to March. 2019 onwards prepared under IFRS16 so not directly comparable with prior figures.
“Much of this comes back to the onslaught that Sainsbury faces from online rivals and the discounters. The latest UK grocery market share figures for Kantar Worldpanel show further market share losses for Sainsbury, although the figures for the three months to June 2020 show losses most of the major players, perhaps as shoppers turned to local and independent stores during to lockdown to cut down on journeys and time out of the house.
Source: Kantar Worldpanel
“The UK grocery market is mature and highly competitive, so growth of any kind is going to be hard to come by, at least under what could be seen as ‘normal’ circumstances. There is also the danger that a sustained rise in unemployment could hit consumer spending on general merchandise, both within Sainsbury stores and stand-alone Argos sites, and prompt trading down to less expensive brands within the grocery business.
“Mr Roberts’ was previously the retail and operations director at Sainsbury. It may be that he focuses on getting the best out of the existing assets by staunchly defending market share through investment in IT, supply chain management and meeting customers’ changing requirements when it comes to the sourcing and packaging of products, as well as their price points, if and when he gets the chance to move on from helping the country to manage the current crisis.”
