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Sainsbury Joins Morrisons on my 'Less-Than-Enthusiastic' List

By Malcolm Stacey | Thursday 11 January 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello, Share Trudgers. Following my less-than-enthusiastic article on Morrisons (MRW) yesterday, I now turn a jaundiced eye on its rival Sainsbury (SBRY).

Its Christmas trading statement revealed record overall sales. But you can’t go on Yuletide figures, as customers forget their inhibitions about overspending in this strange shopping period. Sainsbury claims that its full-year underlying pre-tax profit will be higher than the £560 million that the City is forecasting. The reason: that it's taking-over of Argos is going pretty well.

As usual with big supermarkets, Sainsbury's corner-of-the-street stores are thriving, despite higher prices, as many more people find their time is at a premium. Also galloping ahead are online sales for the same reason. Third quarter numbers showed on-line orders from home computers were up by 8.2%. Sainsbury's pocket stores improved by 7.3%. That sounds encouraging. Except that customers are fewer at the superstores, as the Germans continue to offer lower prices if less choice.

Sainsbury is a quite good dividend payer. The prospective figure I have is 4.4%. But still, the headwinds threaten - including the low pound which buys less foreign food, fierce competition from other British supermarkets, as well as Aldi and Lidl, and wage packets that can’t match rising inflation. The Q2 growth for clothing sales was 6.3%, but that dropped to 1% in the third quarter.

Argos now has 164 stores within Sainsbury supermarkets. The company seems to put a lot of faith in these. But they are also vulnerable to any fall-off in consumer spending. My feeling is the same as that I attached to Morrison and other home-grown supermarkets. The shares are not the best punt on the stock market.

Over now to the Punter’s Return.

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