Sainsbury's shares climb despite sales dip

Added 8th June 2016

Sainsbury's share price rose by 2% to 251p during morning trading on Wednesday following its better than anticipated first quarter update.

 Sainsbury's shares climb despite sales dip

The FTSE 100 index itself was virtually flat at 6284, while the 250 was a fraction down at 17,186.

Sainsbury’s reported its like-for-like sales, excluding fuel, had fallen by 0.8% during the first quarter of 2016, beating analysts’ forecast of a 1.7% decline.  

After adding fuel into the mix, the retailer's like-for-like retail sales were down 1.0%. 

Despite successfully showing up a gloomy analyst outlook, the supermarket giant is not out of the woods yet.

The company’s chief executive, Mike Coupe, admitted “market conditions remain challenging” and that “food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future.”

The Share Centre’s investment research analyst, Graham Spooner, agreed with Coupe’s assessment of the challenging and competitive UK food retail market and said he would “continue to recommend Sainsbury’s as a ‘buy’ for contrarian investors only.” 

However, Spooner stated that if the retailer was able to leverage its range of shopping channels and pull off its product diversification and customer initiatives, “it could have advantages over the likes of Aldi and Lidl,” the discounters who have threatened the established hierarchy of the food retail sector for some time now.

Spooner added that The Share Centre contends Sainsbury’s “is well positioned to deliver and outperform peers” and that “interested investors should appreciate that its balance sheet should put it in a stronger position over peers to defend its market share.”

Nicla di Palma, equity analyst at Brewin Dolphin, also asserted that while there were still "plenty of headwinds to come" in the UK food retail sector, Sainsbury's was by no means the worst off.

"The promotional intensity remains quite high at Tesco and Morrisons. Sainsbury's are cutting prices but it's less about promotion and more about everyday low prices," she said. "Sainsbury's doesn't need to invest too much in its stores or products. It's nothing urgent like what Tesco is facing."

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