When I last looked at Tesco (LSE: TSCO), I had Lidl and Aldi in mind as its key competitors. That comparison reinforced my thoughts that Tesco share price looks appealing. I now have J Sainsbury (LSE: SBRY) in mind, on the day that the more traditional competitor released full-year results.
Sainsbury’s recorded a modest 0.2% increase in revenue. That included fuel sales, though. Excluding fuel, retail sales increased 7.3%. Digital sales jumped 102%, as so many more shoppers made their purchases from behind their computer screens. That’s around 37% of total group sales, and it will be interesting to see what effect the end of lockdown will have on the 2021-22 year. I reckon a lot of new online shoppers will stick with it now they’ve had a go and enjoyed its convenience. And that could help support both the Sainsbury’s and Tesco share prices.
The overall 7.3% rise in sales was in line with Tesco’s, reported early in April. Tesco saw group sales (excluding fuel) gain 7%. There is, however, an interesting difference in online sales. While Sainsbury’s figure more than doubled, at Tesco the increase was weaker at 77%. And the contrast widens when we see digital accounted for only around 12% of Tesco’s total sales.
Early market reactions
As I write, the market has reacted by knocking Sainsbury shares down a couple of percent, while the Tesco share price has barely moved. So where’s the bad news for Sainsbury’s? When it comes to profit, the two supermarket chains performed somewhat differently. On statutory figures, Sainsbury’s reported a £261m pre-tax loss, with a statutory loss per share of 13p. The company did say the loss “predominantly reflects one-off costs and impairments associated with strategic changes announced in November.”
In underlying terms, it saw a £356m pre-tax profit. That’s better, but it’s still a drop of 39% from the previous year. Underlying EPS fell 41%. And what about profit at Tesco? The UK’s biggest supermarket giant saw pre-tax profit fall a less painful 20%, and that’s on a statutory basis too. Diluted EPs at Tesco was unchanged.
There’s a full-year Sainsbury dividend of 10.6p per share, for a 4.4% yield on the current share price. Over at its big competitor, a 9.15p dividend yields a similar 4.1%, on today’s Tesco share price.
Is the J Sainsbury or Tesco share price the most attractive?
Sainsbury’s seems to be progressing well with debt reduction and cash flow. But its restructuring and refocusing in response to years of intensifying competition in the sector does seem to be lagging behind Tesco. I think both of these supermarkets deserve serious consideration as long-term investments, but they’re not without risk.
Online shopping is the real differentiator that keeps both Tesco and Sainsbury’s on my potential buy list. But where will that go? With lockdown easing, I’ve been back to Aldi a few times myself. How many will stick with online shopping, and how many will seek the cut-price bargains from our German cousins? That’s the big question that should resolve itself over the next few years.
In the meantime, today’s Tesco share price indicates a P/E of 18, with Sainsbury’s on 20 (on an adjusted/underlying basis respectively). Its greater market reach and speedier response to market changes gives Tesco the nod over Sainsbury’s for me.
