The Motley Fool

Why I’d sell J Sainsbury plc shares

The latest trading statement from J Sainsbury (LSE: SBRY) on Thursday has vindicated my long-standing bearish take on the supermarket struggler.

Sainsbury’s announced that like-for-like sales (excluding fuel) fell 0.5% during the nine weeks to March 11, underlining the company’s battle to stop shoppers flocking to its rivals.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Britain’s second-largest chain saw corresponding underlying revenues rise 0.1% during the prior three months, in what now appears to have been a mere pause in the firm’s downward sales spiral — revenues fell 1% during the first six months of fiscal 2017.

While chief executive Mike Coupe commented that “we are pleased with this performance and are making good progress against our key priorities,” he added that “the market remains very competitive and the impact of cost price pressures remains uncertain.”

Argos cheers

While sales of its traditional items continue to splutter, Sainsbury’s recent acquisition of catalogue colossus Argos has helped take some of the sting out of quarter four’s poor result.

Like-for-like revenues at Argos soared 4.3% during the period, Sainsbury’s observed, a result that drove combined underlying sales across the group 0.3% higher.

Commenting on Argos specifically, Coupe noted that “online participation is growing, driven by mobile and Fast Track delivery and customers are responding well to new ranges,” and added that “we are investing in digital to deliver excellent service and availability, with enhancements to the Argos website and app.”

Competitive concerns

But the plucky performance of Argos is not enough to encourage me to invest in Sainsbury’s, as the struggle at its core operations is only getting worse, with inflationary pressure and signs of stuttering wage growth still pushing customers into the arms of discounters Lidl and Aldi.

Latest Kantar Worldpanel numbers showed sales at these chains shoot 13% and 12.9% higher, respectively, during the 12 weeks to February 26th. This compares starkly with the meagre 0.3% till-roll rise over at Sainsbury’s, and suggests that the chain will have to keep price cutting to stop sales collapsing.

Meanwhile, profit margins at Sainsbury’s are likely to face a double whammy as the ongoing Brexit saga weighs on sterling.

Not cheap enough

Investors have recently shrugged off these fears and the share price of Sainsbury’s recently touched levels not seen since last May. Consequently Sainsbury’s now finds itself dealing on a prospective P/E ratio of 13.2 times.

Whilst below the FTSE 100 forward average of 15 times, I would consider a figure closer to the bargain watermark of 10 times to be a fairer reflection of the chain’s high risk profile.

City analysts certainly don’t expect earnings at Sainsbury’s to snap higher any time soon, and predict that the grocer will follow a 16% slump in the year to March 2017 with a further 4% drop in 2018.

It that happens it would represent the fourth annual fall, and it is not difficult to see these woes extending much further into the future, as the fragmentation of the supermarket sector intensifies. I reckon today’s results should encourage stock pickers to keep giving Sainsbury’s an extremely wide berth.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

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

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.