- Sainsbury’s raises profit guidance
- Supermarket will pay special dividend and raise share buyback
- Food strategy is working, but is this as good as it gets?
- Competition remains fierce and Asda and Lidl are the ones to watch
Dan Coatsworth, head of markets at AJ Bell, comments:
“You can really taste the difference between the current version of Sainsbury’s and the one of old.
“Previously, the supermarket was squeezed in the middle between a flourishing Waitrose serving people who wanted posh food and the value end where the likes of Aldi, Lidl and Asda captured the bargain hunters. Now, it has put up a good fight to boost its position at both ends of the spectrum.
“At the value end, it’s helped that Asda has lost its way in recent years and left Sainsbury’s able to score an open goal. Sainsbury’s has also managed to stand its ground against the German discounters and resonate with shoppers where price is the most important factor. At the top end, it’s helped that Waitrose has come off the boil while Sainsbury’s has pushed hard on its premium range to win over shoppers looking for something special.
“Its latest results give the impression of a business in a sweet spot. Profit guidance has been upgraded, it has announced a special dividend and a boost to its share buyback scheme, and the dividend has gone up by more than the rate of inflation.
“So far, so good, but the market dynamics are constantly shifting. Asda is determined to stage a comeback, and the prospect of a price war means it is one to watch. Tesco continues to nudge up its market share, and Lidl is quietly becoming a much stronger player, according to industry data. It begs the question of how Sainsbury’s is going to meaningfully move its share of the grocery sector beyond the current level.
“Argos’ performance looks weak over the second quarter, albeit Sainsbury’s attributes the minimal growth to tough comparative figures – sales in Q2 last year were boosted by shoppers snapping up cut-price goods as it tried to clear stock. Even still, this year’s performance looks sluggish and doesn’t bode well if Sainsbury’s wants to attract further bid interest for the general merchandise brand and get a good price for it.
“Sainsbury’s shares have enjoyed a good run since April, but the lacklustre market reaction to its half-year results would suggest investors might be starting to wonder if the supermarket has reached its peak.”
