Sainsbury’s backed by UBS and Deutsche after mixed first quarter Proactive uses images sourced from Shutterstock
J Sainsbury PLC’s (LSE:SBRY) first-quarter update gave analysts enough evidence to stick with buy ratings, as grocery sales beat forecasts and Argos traded better than expected.
The supermarket group reported retail like-for-like sales growth of 2.1%, excluding fuel, ahead of the City consensus forecast of 1.9%.
Grocery sales rose 3.6%, beating consensus of 3.4%, as Sainsbury’s continued to gain market share and grow volumes.
UBS said the performance was stronger than many investors had expected, with buy-side forecasts generally in a 3-3.5% range.
Online grocery sales rose 12.5%, Taste the Difference sales grew 6% and fresh food sales were up 5%. The group also launched more than 380 new products during the quarter, around half under the Taste the Difference range.
Argos was also better than expected. Sales fell 0.5%, against consensus for a 2.6% decline and a Deutsche Bank forecast for a 3.5% fall. Volumes rose 2.2%, but this was offset by lower average selling prices.
General merchandise and clothing remained weaker, with sales down 3.7%, hit by tough comparatives and ongoing space reallocation.
Deutsche Bank said weaker GM and clothing was “likely weighed by ongoing space reallocation”.
Sainsbury’s reiterated guidance for underlying operating profit of £975 million to £1.075 billion and retail free cash flow of more than £500 million.
UBS kept its buy rating and 395p target price, saying: “Overall, a good start to the second most important quarter in the year, well underpins the guidance.
“Continued strong trading momentum in a rational market could drive upside to the profit outlook.”
Deutsche Bank called the update “a robust print against fairly subdued 1Q expectations” and noting that Sainsbury’s continues to gain market share in grocery.
While sales saw a slowdown from the preceding quarter, this reflects “various moving parts” in the year-on-year comparisons, i.e. food disinflation, weather, and cyber disruption at M&S.
Deutsche expects the warm weather into the second quarter will be “supportive for seasonal sales” and, with the stock trading on 13.7 this year’s forecast earnings and a 7.8% free cash flow yield, kept its ‘buy’ rating in place.