Retail gloom? What retail gloom?!
Sainsbury’s has just recorded its best Christmas trading period ever. The supermarket’s highlights include:
• Total sales for third quarter up 4.8 per cent (5.3 per cent excluding fuel)
• Like-for-like sales for third quarter up 3.9 per cent (4.5 per cent excluding fuel)
• Continued growth in customer numbers: 22.6 million customers at Christmas (1)
Although…
“The economic environment remains particularly challenging and we expect this to continue in 2009, however our continued investment in price and promotions along with universal appeal and a wide customer base means we are well positioned to continue our good progress.”
So again it looks like what is Waitrose and Marks & Spencer’s loss is every other retailer’s gain – Dow Jones now suggesting the results look promising for rivals Tesco and William Morrison too. Although can all this extra market share really just be coming from consumers trading down from just those two retailers? M&S’s and Waitrose’s Christmas performances weren’t actually that bad after all.
Digging deeper into the numbers Sainsbury’s says its basics range in particular saw sales rocket by more than 40 per cent year-on-year. Discounts on over 50 per cent of goods also played a major part over Christmas, the supermarket said.
All in all a much better performance than expected. Here’s some comment from Pail International:
As we thought JS delivered the goods again in Q3, but the 4.5% LFL growth (ex-fuel) is better than we dared hope, vs consensus of +3.7/3.8%% and on an ex-VAT basis that would have been as much as +4.9%. The Nielsen industry data out this afternoon should show that SBRY outpaced the industry last month, notwithstanding the bullish comments from Waitrose and M&S on their own Xmas performance. This reflects good non-food growth, good product availability, good advertising/promotions and good range architecture. There is no comment from SBRY today on gross margins/profits apart from noting the dilutive impact of falling fuel prices, but fuel is not very profitable either way and full year PBT forecasts (Pali £545m PBT) could still edge up on this basis. We are sticking to our Buy and raising our TP from 325p to 360p, which would give an EV/EBITDA of 7x (still a discount to MRW and TSCO) and a 15% discount to the freehold property value. The conf call at 8.45am will see ebullient CEO Justin King tackle the bears.
And this is what Citi has to say about the outlook:
FY expectations reiterated — Management repeated its comments from 2Q that it expects the “particularly challenging” environment to continue into 2009; but the company remains happy with consensus expectations for the full year — which we believe to be c£525m PBT. We make no change to our EPS figures.
Meanwhile Seymour Pierce is worried about the ongoing effects of consumers trading down:
We are becoming more concerned about the outlook for the food retailers. The food retail market is becoming more competitive and the level of promotional activity is increasing; consumers are continuing to trade down, a trend that is likely to accelerate in Sainsbury’s southern heartlands; and returns on the heavy capital expenditure programme are starting to contract. We are also concerned that the food retailers are likely to underperform in any sector rotation. We downgraded the stock in September to Hold and continue to believe the stock is more than fairly valued at 16.0x 2008/9 earnings.Sainsbury shares were trading about 1.6 per cent higher in early Thursday trade.