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Sainsbury Sales Down in Q3, Profit Target Raised

J Sainsbury plc (LON: SBRY), the second-largest supermarket chain in the UK, posted lower total retail sales in the third quarter with drops in all divisions. 

Champagne Sales Soared 

Total retail sales for the third quarter, excluding fuel, were down 5.3% with declines across all divisions. In its business update for the 16 weeks through January 8, the company said total retail sales, including fuel, were down 0.1% for the third quarter. In the previous year, non-fuel retail sales were up 6.8%, and included fuel was up 1.7%. 

In the third quarter, like-for-like sales excluding fuel were down 4.5%, while those including fuel were up 0.6%. Online sales of grocery products fell 16.5%. 

In the six weeks leading up to the Christmas period on January 8, total non-fuel retail sales fell 2.9% and online grocery sales fell 15.1%. Sales fell 2.4% over the Christmas period, excluding Boxing Day. 

Sainsbury’s said it had its biggest champagne sales in history, contributing to its best New Year’s business, as there was an increase in demand for Argo’s last-minute online orders. 

Management Commentary 

J Sainsbury plc chief executive Simon Roberts said, “We were bold in our plan for product, value, innovation and service and delivered volume growth ahead of the market. We delivered our best value food this Christmas, launched our lowest ever priced Christmas dinner heading into the key Christmas shopping week and we had our biggest ever New Year. Customers also treated themselves and new Taste the Difference products in party food, desserts, wines and spirits were really popular and we had record sales of champagne and sparkling wines. Offering great value will be more important than ever this year and we have just launched our bold new Sainsbury’s Quality Aldi Price Match campaign, which targets 150 fresh products that customers buy most often.”

Outlook 

Sainsbury has nonetheless revised its target for underlying profit before tax upwards to at least 720 million pounds for the fiscal year which ends next March, from 660 million pounds previously. 

Profit expectations were reinforced by better-than-expected grocery sales, improved profit margins on non-food and bad debts lower than feared in its banking branch. 

Wall Street’s Take

On January 12, Morgan Stanley analyst Maria-Laura Adurno kept a Hold rating on SBRY and 247p price target. This implies 14.4% downside potential. 

Overall, SBRY scores a Hold consensus rating among analysts based on three Buys, six Holds, and one Sell. The average SIG plc price target of 278.56p implies 3.4% downside potential to current levels. 

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