Does J Sainsbury plc’s Q3 Trading Statement Prove It Can Outperform Tesco PLC, Next plc, Sports Direct International Plc And WM Morrison Supermarkets PLC?

Is J Sainsbury plc (LON:SBRY) (LSE:SBRY.L) well placed to beat Tesco PLC (LON:TSCO) (LSE:TSCO.L), Next plc (LON:NXT) (LSE:NXT.L), Sports Direct International Plc (LON:SPD) (LSE:SPD.L) and WM Morrison Supermarkets PLC (LON:MRW) (LSE:MRW.L)?

J Sainsbury plc
J Sainsbury plc

J Sainsbury plc (LON:SBRY) (LSE:SBRY.L) has released a Q3 trading statement today. Total retail sales increased by 0.8% (excluding fuel) and LFL retail sales increased by 0.1% (excluding fuel), with total volumes up and LFL volumes flat. Argos total sales increased by 4.1% and by 4% on a LFL basis. When combined with the core Sainsbury’s performance, this gives a LFL sales growth figure of 1% (excluding fuel).

Within the Sainsbury’s operation, Groceries Online and Convenience channels performed well and achieved over 9% and 6% sales growth respectively. Clothing and General Merchandise also performed well, with the former recording a rise in sales of 10% and General Merchandise up 3%.

Within Argos, strong growth was delivered in the quarter. This was driven by Black Friday and the Christmas trading period. The Argos digital stores within Sainsbury’s supermarkets are performing well, while online sales continue to increase. They represented 18% of group sales in Q3 and 57% of Argos sales, with them growing by 13% within the Argos operation.

Sainsbury’s has removed the vast majority of its multi-buy promotions to focus on a simpler pricing strategy. This year, customers paid 14% less for a typical Christmas basket than they did two years ago, which highlights the scale of the food price deflation being experienced. However, a weaker pound could mean that this situation changes over the next two years.

Sainsbury’s has risen by 17% in the last three months. That’s ahead of retail peers Tesco PLC (LON:TSCO) (LSE:TSCO.L), Next plc (LON:NXT) (LSE:NXT.L), Sports Direct International Plc (LON:SPD) (LSE:SPD.L) and WM Morrison Supermarkets PLC (LON:MRW) (LSE:MRW.L). Tesco is up 6%, Morrisons is 14% higher, Sports Direct is down 3% and Next has slumped by 12%.

In my view, Sainsbury’s has an uncertain future. Although the combination with Argos has thus far gone well and there are cross selling opportunities, I believe that consumer spending will be hurt by higher inflation this year. Therefore, demand for consumer discretionary items could fall. While Sainsbury’s has a sound long term plan, I think there may be a better buying opportunity further down the line.

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