Sainsbury dodges horsemeat to post strong Q4 results
The results “quite materially outperformed its major supermarket peers in the UK”, according to City analyst Shore Capital.
Fourth quarter sales were up by 7.1% – or 6.3% excluding fuel. Like-for-like sales over the period were up by 4.2% – or 3.6% excluding fuel.
Full year like-for-like sales climbed by 2.1% and 1.8% excluding fuel. Weekly customer transactions soared by more than 800,000 year-on-year.
The best sales growth came from non-food products, with clothing sales up by 20% and accessories 25% ahead, over the reporting period.
‘Meat contamination issues’
Shore Capital analysts Clive Black and Darren Shirley said the retailer appeared to have escaped the worst effects of the horsemeat scandal. “We do believe that the supermarket chain has not been impacted to the same negative extent as Tesco UK from recent meat contamination issues.”
Sainsbury pointed out that it had been DNA testing for 10 years. It has also confirmed that it buys all of its fresh poultry from the UK, while all of its beef comes from the British Isles. But Shirley and Black said its poultry pledge might not mean frozen poultry and chicken used in ready meals.
Shore Capital noted that Sainsbury – the nation’s third third-largest retailer after Tesco and Asda – opened 15,143m2 of extra retail space in the fourth quarter. That included three supermarkets and 19 convenience stores. The full year figure was 13 net supermarkets, eight extensions, 20 refurbishments and 83 convenience stores.
‘Reduction in demand’
But Sainsbury would do well to follow the lead of Tesco in cutting capital expenditure and Morrisons’ reduction in supermarket openings, said Shirley and Black: “We believe that a structural reduction in demand in recent years, reflecting the sustained contraction in real incomes in the UK, merits a reappraisal of space plans by all of the majors.”
The analysts lifted their estimate of earnings before interest and tax by £6M to £824M and current pre-tax profit to £750M compared with £712M for 2011/2012.
Shore Capital retained its ‘hold’ advice on Sainsbury’s stock.
Meanwhile, the retailer’s chief executive Justin King said: “We have delivered strong sales in the fourth quarter, increasing market share and outperforming in what remains a tough retail environment.”
King added that customer transactions in the fourth quarter grew to a record 22.9M a week.
“Valentine’s Day and Mother’s Day were both particularly strong this year, and we closed the quarter with a very successful Red Nose Day, presenting a record cheque for £10.5M on behalf of customers and colleagues,” he said.
