02 November 2023
If you are covering Sainsbury’s latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Sainsbury’s delivered good results this morning and the market appears to agree, with revenues in line with expectations and profits up slightly. Importantly, grocery volume growth has been positive - Sainsbury’s has weathered the cost of living crisis in its groceries division well. What is happening though is other parts of the business are struggling where consumers have made cutbacks. People may be buying the same amount of groceries, but they are buying less general merchandise and this is hitting other parts of the Sainsbury’s empire.
“Ultimately, though, supermarket retailing remains a high volume, low margin business. For an investor this means you want to own the companies that have the largest scale and strongest market position, and, unfortunately for Sainsbury’s, that remains to be Tesco. Sainsbury’s continues to have lower margins than Tesco and as a result it is tough to see how the market arrives at the valuation it is giving it, particularly when other parts of the business are not as strong.
“Tesco also announced it is bringing in a former Aldi executive to lead the UK business. This is an interesting development and could signal the future direction for this business. Sainsbury has scheduled a strategy update for February – it will be interesting to see how it responds.”
