J Sainsbury plc Is Skating On Thin Ice


It’s hard to imagine that a few short months ago, J Sainsbury (LSE: SBRY) could boast 36 consecutive quarters of like-for-like sales growth.

With the supermarket sector on the skids, those figures seem to hark back to a distant age.

Those numbers were delivered under former chief executive Justin King, who got out just in time. New boss Mike Coupe is left with the unhappy task of reporting a 2.1% fall in like-for-like sales excluding fuel, for the 28 weeks to 27 September.

Sainsbury’s posted a loss before tax of £290m, against a £433m profit last year.

Still, things could be worse. It could be Tesco.

Cold Comfort

What is particularly worrying is that even in the glory days of consecutive quarterly growth, when Justin King was doggedly hanging onto market share, the share price went nowhere over five years.

Now the growth is gone, the shares are falling, down 22% over six months, and 4% on the morning of results.

Coupe’s admission that like-for-like sales are expected to remain “negative” for the next few years will have sent a shiver down many investors’ spines.

Christmas Is Coming

All of which leave Sainsbury’s vulnerable as it heads into the all-important Christmas shopping season. Right now, it is skating on thin ice.

As Phil Dorrell, director of consultancy Retail Remedy has pointed out, although there is no existential crisis at Sainsbury’s, its once distinctive ‘Price Match’ pledge has been blunted by the discounters and price-cutting at Asda and Morrisons.

Its relative upmarket status does give it the chance to gain ground over Christmas, Dorrell says, where people often trade up and away from the discounters.

The downside is that its online presence is relatively weak. Yes, Sainsbury’s does home grocery deliveries, and some offerings such as ebooks and clothing.

But a quick comparison shows a far more whizzy Tesco Direct, whose product categories include technology and gaming, home electrical, home and garden, DIY and car, toys, sports and leisure, health and beauty, and clothing and jewellery.

Shoppers tend to buy Christmas gifts earlier than their food, which could give Tesco a head start in the festive race.

Netto Loss

Coupe is grinding on, bravely trying to take on the discounters through its joint-venture with Netto, but the planned 15 stores aren’t enough to turn things round, and only risk cannibalising superstore sales.

Although Sainsbury’s held its interim dividend at 5p per share, that’s set to fall in the second half, as it spends £150m joining what looks to me like an ill-fated supermarket price war.

Unless Coupe can turn things round, Christmas may be when the cracks really start to show at Sainsbury’s.

Sorry, Sainsbury's, but I'd rather invest in strong, growing companies that are raising their dividends rather than cutting them.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.