Analysts at Deutsche Bank issued a positive note on Sainbury’s today ahead of its full-year results next week, arguing that the supermarket group could be a relative winner in the sector compared to its rivals but warning that it will have to join them in slashing prices to stay ahead of the game.
The bank expects Sainsbury’s to have fared well over Easter compared with the other big three and for sales to have bounced back in April after its late timing, with market share data from Kantar Worldpanel due out the same day as their results on 7 May.
However with the UK grocery market experiencing the slowest growth in nine years, Deutsche Bank sales at Sainsbury’s will inevitably slow. The retailer last month revealed a decline in fourth quarter sales, ending a nine-year run of quarterly sales growth.
“We think Sainsbury’s can be a relative winner but sales growth will still slow, making it more difficult to offset cost inflation. Furthermore, Sainsbury’s may need to invest in price to maintain its relative outperformance,” Deutsche Bank analyst Niamh McSherry said.
“We expect Sainsbury’s to respond to price competition, which we believe has the potential to become very real,” she added.
The UK’s big four supermarkets are facing unprecedented pressure from discounters grabbing sales at the value end and grocers such as Waitrose at the top. Tesco, Asda and Morrisons have all pledged hundreds of millions of pounds of investment in price cuts, with Sainsbury’s the only one so far standing its ground.
Sainsbury’s outgoing chief executive Justin King last month dismissed the recent price actions of competitors as little more than “the normal cut and thrust of this market”.
Deutsche Bank also suggests Sainsbury’s could cut its capital expenditure guidance for the new financial year from the £1.1bn (excluding its banking operations) for the past year to help ease pressure on profitability and cash flow from slower sales growth.
It maintained its “hold” recommendation and forecasts Sainsbury’s to report underlying pre-tax profits of £750m, down from £756m the previous year.
Several other analysts have also recently commented on the stock ahead of the results, with Jefferies last week also keeping its “hold stance” and similarly predicting the group to scale back its capital expenditure and store openings as well as matching its rivals’ price cuts.
Sainsbury's shares edged up 0.85 per cent today to 333.3p.