Wednesday preview: Sainsbury's in the spotlight with trading update
J Sainsbury reports its trading update on Wednesday, a day after the latest figures from Kantar Worldpanel revealed it was the only one of the Big Four supermarkets to increase its market share.
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In the 12 weeks ending 3 January, Sainsbury's increased sales by 0.8% on last year as a simple price cutting strategy helped attract an additional 114,000 shoppers, Kantar said on Tuesday.
Fraser McKevitt, head of retail and consumer insight at Kantar, said: “Once again, Sainsbury’s was the best performing of the traditional supermarkets. Its premium Taste the Difference brand posted its biggest ever Christmas sales and promotional efforts were concentrated on simple price cuts rather than complicated multi-buy deals. This helped attract an additional 114,000 shoppers, with sales increasing by 0.8% on last year.”
The other three of the Big Four supermarkets, however, saw sales drop. Sales at Tesco, Asda, and Morrison’s declined 2.7%, 3.5% and 2.6%, respectively. Overall, sales in the British grocery fell by 0.2% on last year, amid supermarket price war.
A separate report from Nielson’s also revealed Sainsbury’s was the only Big Four supermarket to grow market share in the final 12 weeks of the year. Sainsbury’s was up 0.2% while Asda fell 4.2%, Morrison Supermarkets dipped 2.7% and Tesco declined 2%. Smaller discounters continued to charge the market, with sales in Aldi up 20.6% and sales in Lidl up 17.9%.
Turning to Sainsbury’s trading update, Deutsche Bank expects the supermarket to report a 0.8% like-for-like drop in sales in the 14 weeks to 2 January amid heavy discounting and tough competition in the sector.
“Our one concern is the potential negative impact of unseasonably warm weather on clothing sales, which we estimate represents 3% to 4% of sales ex fuel, had been growing at c.10% and is margin accretive,” said DB analyst Niamh McSherry.
Michael Hewson, senior market analyst at CMC Markets, said Sainsbury's was the best performer in 2015 and as such could be more vulnerable to disappointment if trading falls short of expectations.
He also noted the bearing it could have on Sainsbury’s efforts to take over Home Retail.
“This move by Sainsbury also raises a more significant question, as to whether 2016 could bring about some consolidation in the retail sector, or whether we see further collaborations in the form of store concessions on a much smaller scale,” Hewson said.
“It’s certainly not the first time that a move on Home Retail has been mooted, and given the pressure on margins it may not be the last. In this respect both Sainsbury and Home Retail’s trading updates could well offer some important direction in this regard, especially if the Argos part of the business disappoints once again.”
Home Retail knocked back a reported £1.1bn offer from Sainsbury’s in November and analysts expect the bid will be raised by as much as £500m.
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