Sainsbury's Results Boosted by Argos Sales

In the non-food segments, Argos is gaining market share, with strong growth in the mobile, audio, and tech categories

Morningstar Equity Analysts 4 July, 2017 | 4:44PM

Sainsbury’s (SBRY) reported strong trading performance for first-quarter 2017/18, with like-for-like sales up 2.3%, excluding fuel, and with transaction growth in all channels. Despite the top-line performance exceeding our expectations, our fair value estimate and no moat rating are unchanged. We believe hard discounters remain the main competitive threat on both the medium- and long-term horizons, and strong top-line growth in the first quarter isn't sufficient to change our stance on the industry.

The firm reported good results in the clothing segment at 7.2% growth, followed by grocery at 3.0% and general merchandise at 1.0%. In the grocery segment, Sainsbury’s invested in new product lines, as well as space expansion, with one new supermarket and 10 convenience stores opened in the quarter. In the non-food segments, Argos is gaining market share, with strong growth in the mobile, audio, and tech categories.

The company is on track to open around 135 Argos Digital stores by the end of 2017/18. Argos online sales were up 10%. We feel Sainsbury’s has a solid online operation as one of the first movers, having operated online since 1997, and with its position enhanced by the Argos acquisition. With close to 100% coverage of the U.K. population, we believe Sainsbury’s can face competitive pressures in the online channel.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Sainsbury (J) PLC208.70 GBX1.21

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Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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