UK retailer Sainsbury's posted a slight decrease in pre-tax profit in its full year results, however its food business "remains resilient in a challenging market", according to chief executive Mike Coupe. Here's how the analysts saw it.
John Ibbotson, Retail-Vision
“Argos is undoubtedly the trump card responsible for the solid increase in group sales. But while Mike Coupe will be keen to dismiss the fall in underlying profits as a blip brought on by the cost of the acquisition, this should not distract from the weaknesses in the core Sainsbury’s grocery business.
“The convenience and online offerings are a bright spot in an otherwise challenging picture. Food price inflation has slashed margins and Sainsbury’s continues to lose market share to both Tesco and Morrisons. The brand’s much-vaunted turnaround plan has been slower to show results than those of its rivals, who have successfully staunched their losses with aggressive price cuts and structural reforms.
“Argos has so far proved an effective ‘get out of jail card’ for Sainsbury’s. But with inflation biting into consumer spending and the latest retail sales figures showing that the consumption boom is waning, Sainsbury’s must get its core business in order before its catalogue crutch is pulled from under it.”
Tom Berry, GlobalData
"Sainsbury’s concludes arguably the most eventful year in its history with a mixed set of results, which were buoyed by the injection of sales from its acquisition of Home Retail Group, but hampered by disappointing l-f-l sales as consumers look for cheaper food & grocery options. The faltering growth of real wages against significant inflationary headwinds, particularly in food, will be a cause of concern for Sainsbury’s, already one of the more expensive UK grocers.
"Online and convenience sales continue to be drivers of growth for Sainsbury’s, rising over 8% and 6% respectively as time-short consumers look for the most convenient ways to complete the food shop. The growth of Sainsbury’s grocery app, launched almost 12 months ago, highlights the benefit of investment in smartphone platforms, with over 10% of online orders coming through the app. With the Sainsbury’s store portfolio skewed towards the convenience sector (around 60% of all stores), it will be rightly concerned about the proposed Tesco-Booker merger as the potential for Tesco to utilise its expansive supply chains will enable it to provide stores with products at more competitive prices."
Alastair Lockhart, Savvy
"Sainsbury's results today reflect the harsh nature of the trading environment. Like its rivals it is having to contend with a slow grocery market and increasing cost inflation. However, Sainsbury's continues to face additional challenges in the shape of a resurgent Tesco and Morrisons. It also finds its core business fighting against intense competition from Aldi and Lidl as they open more stores in Sainsbury's southern heartland. This last point in particular should be a point of concern for the grocer as the discounters still have substantial scope to open new stores and gain new customers in the south east of England.
"Despite challenges at the food business, the retailer is still able to tell a positive story. The retailer's core own label business continues to grow, online and convenience delivered solid growth and we believe the retailer's removal of multi-buy promotions will benefit shopper price perceptions and ultimately sales. We also know that Sainsbury's maintains better quality perceptions than its rivals - an important asset at a time when the ability to create points of differentiation is crucial."
Bruno Monteyne, Bernstein Research
"[Sainsbury's posted] underlying FY retail EBIT of £626m; 1.3% below consensus of £634m but consensus has been creeping up 2-3% in recent months. […] Management continue to strike a cautious note into next year citing the competitive market and cost pressures. We expect margin pressure on food retail side to continue into H1 next year before we see the turning point from cost savings, synergies and growth in H2."
Barclays European Food Retail Equity Research
"There is no significant change to what the company has previously said, with a couple of smaller exceptions. Firstly, the Argos synergies (£160mn EBITDA) will now be delivered in two and a half years rather than three, i.e by end of 2018/19. Secondly, the 1H17/18 PBT will be lower than 2H17/18 PBT due to the annualisation of price investments made in 2H16/17, likely seasonally lower profits at Argos in 1H than 2H and extra salary costs. Thirdly, the company says depreciation will be c£700m in 17/18 (Barclays £724m) and that the Bank’s profit will grow by c10% (in line with our 10% forecast) and is well set for growth from here.
"The acceleration of Argos synergy delivery is welcome but the ongoing weakness of core supermarket margin remains concerning."
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine
