Sainsbury’s (LSE: SBRY) 1Q19 Sales Update: Very Weak Growth Confirms Underperformance Versus Peers

KEY POINTS

  • Sainsbury’s reported very weak comp growth of just 0.2% in 1Q19. 
  • General merchandise drove growth, with a sequential slowdown in grocery growth.
  • For FY19, the consensus calls for Sainsbury’s to grow revenues by 1.1% and to post a very slight strengthening of its operating margin. 

1Q19 Sales Update

UK grocery retail Sainsbury’s reported the following for 1Q19, the 16 weeks ended June 30: 

  • Comparable sales excluding fuel were up by just 0.2%, again decelerating sequentially, but in line with the consensus estimate. In the prior quarter, comp growth came in at 0.9%. 
  • Total retail sales growth slowed to 0.8% in 1Q19, from 1.3% in 4Q18.
  • Total grocery sales were up 0.5% year over year, a slowdown from 2.1% in 4Q18.
  • Total general merchandise sales, which includes Argos, were up by 1.7%, versus a fall of 1.2% in the prior quarter.
  • Clothing sales were up 0.8%, compared to 0.4% growth in 4Q18. 

The weak sales performance had already been indicated by recent data from market-measurement firm Kantar Worldpanel, which showed that Sainsbury’s has consistently been the slowest-growing of the major UK grocery retailers so far this year. 

Management pointed to “a continuation of the improved volume trend” in grocery and noted that general merchandise and clothing “gain[ed] share in a challenging market.” The company opened a further 37 Argos stores in Sainsbury’s supermarkets; this format grew sales by an average of 15% in their second year of trading.

CEO Mike Coupe stated that the proposal to combine Sainsbury’s and Asda will create a player “with the scale to give customers more of what they want today and create a more resilient and adaptable business for the future.”

Outlook

Management provided no new guidance. For FY19, analysts expect Sainsbury’s to grow total revenues by 1.1% to $28.8 billion and to post a 4.4% rise in EBIT, yielding an EBIT margin of 2.5% versus 2.4% in FY18.