Sainsbury’s share price: 4 things to watch out for in its full-year results

After having its planned merger with Asda shot down by regulators, the British supermarket chain must find new ways to fight off competition from rivals, with investors eagerly awaiting its full-year results for answers.

Sainsbury's Source: Bloomberg

Sainsbury's will release its annual result on Wednesday, with investors eager for an update on how the company plans to drive growth after regulators blocked its planned merger with Wal-Mart-owned Asda amid an increasingly competitive and challenging grocery market.

What next after Asda merger blocked?

Last week, Sainsbury’s suffered a major blow ahead of its full-year results after the UK Competition and Markets Authority (CMA) chose to block its planned merger with Asda.

The watchdog blocked the merger on the basis that the marriage would have resulted in lesser product options and higher prices for consumers. The CMA also felt that the deal will result in a ‘substantial lessening’ of competition both at the national and local level.

The decision brings an abrupt end to a merger that would see the pair have sufficient size and scale to overtake rival Tesco as the number one supermarket chain in the UK market.

Even though both supermarket giants have now taken the merger off the table, Sainsbury's chief executive Mike Coupe contended with the CMA’s views in a statement, stating that that the merger sought to ‘lower prices for consumers’, and added that the competition watchdog has ignored the 'dynamic and highly competitive nature of the UK grocery market’.

Investors will now be looking intently at Sainsbury’s upcoming trading update for guidance on how the business plans to drive growth amid a highly competitive and challenging grocery market.

Sainsbury’s guidance

The British supermarket chain underperformed its rivals in its third quarter, with grocery sales growing marginally, while non-food items contracting.

However, analysts still expect Sainsbury’s to record a 6.2% increase in its annual underlying pre-tax profit, as well as a 4.9% rise in earnings per share and a 2.9% uptick in its dividend.

Will Sainsbury’s sales performance improve?

Investors will be keen to see if Sainsbury’s record strong sales growth in the final quarter of its financial year, after a disappointing set of results over the Christmas period, which saw rivals Teso and Morrisons both outperform it.

Sainsbury’s like-for-like (LfL) sales in Q3 was the worst on record for the year so far, or the year before. LfL sales excluding fuel fell 1.1% in Q3 compared to 1% growth in Q2 and a 0.2% rise in Q1. Including fuel, LfL sales collapsed to 0.3% in Q3 from 3.4% in Q2 and 2.6% in Q1.

Meanwhile, its core grocery business was the only segment to report continued sales growth in the latest quarter, but at 0.4% it was the slowest on record for a while. Grocery sales had risen 0.5% in Q1 and jumped 2% in Q2. Investors will be keen to see that both total sales and LfL sales bounced back in the final stages of the year.

Argos sales boost while general merchandise margins under pressure

Sainsbury’s lacklustre Q3 was driven by a slip in general merchandise sales, with the business seeing revenues fall 2.3% and helping the supermarket deliver its worst performance in the last two years. Meanwhile, clothing sales fell 0.2% in Q3, improving from the 3.4% decline in Q2 but below the 0.8% growth reported in Q1.

Sainsbury’s admitted that the general merchandise market remains 'highly competitive and promotional' and warned margins were still under pressure.

While that was not welcome to investors ears, the supermarket said Argos was outperforming the wider market. LfL sales from Argos stores inside a Sainsbury’s store in Q3 jumped 10%, which supports the view that it is weakness in the market rather than Sainsbury’s or Argos.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

See an opportunity to trade?

Go long or short on more than 16,000 markets with IG.

Spread bet and trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Bid
Offer
Updated
Change
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.


For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.