Sainsbury’s shares were on offer on Tuesday after the supermarket said sales growth had slowed and price inflation slows.
Higher prices last year were always going to make the comparables tough as inflation slowed. Sainsbury’s sales growth has slowed to 2.7% in the first quarter, compared to 4.8% last quarter and 9.8%
Although soaring inflation last year can account for the plateauing of sales growth, such a step down is a bitter pill for some investors to swallow.
Investors may be concerned about a mismatch between lower sales prices and input costs results in squeezed margins in the coming periods. Concerns about margins and a general slowdown in sales growth were enough to send investors to the checkout on Tuesday, and shares slid 2%.
“At first glance, it’s a bit tough to work out what sort of results have landed in Sainsbury’s bagging area,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
“Ultimately, the reduction in the rate of growth was partly to be expected, especially in grocery. As inflation cools, the weather worsens and tough comparisons crop up on the course, eking out the amount of growth seen last year was always a difficult ask. But there is a lingering Sainsbury’s specific issue in its ownership of Argos.”
Lund-Yates continued to explain that while Argos can provide excellent exposure to areas outside of groceries, it is a highly cyclical business that suffers when consumer tighten their purse strings.
“Electronics aren’t faring well in this economic climate, as people prioritise the essentials. General merchandise is the most cyclical area of the supermarket economy to be in, so being overweight in this arena really slows you down when times get tough. The additional exposure offsets and hides what has been a remarkable showing for the core grocery business.
“Sainsbury’s was having a bit of an identity crisis, straddling the more vulnerable middle-line between premium and value. An awful lot of work has gone into improving products, value perception and innovation more generally, giving the group enough gusto to start moving market share in the right direction. AI ambitions to improve real-time customer service and experience are grand but a bit thin on detail, so an area to watch.”
