3Q18 Update

Sainsbury’s posted comparable sales growth of 1.1% in 3Q18, the 15 weeks ended January 6. This was ahead of the consensus estimate of 0.55% recorded by S&P Capital IQ, and was an acceleration from 0.6% comp growth in the prior quarter. The comp figure includes general-merchandise chain Argos. The company’s total retail sales were up 1.2% in 3Q18, versus 1.4% in the prior quarter. Grocery sales at Sainsbury’s were up 2.3%, from 1.4% in the prior quarter, supported by raised food-price inflation. General merchandise sales, which mainly consist of Argos, were down 1.4%, versus down 1.6% in the prior quarter. Clothing sales at Sainsbury’s were up 1.0%, slowing from 6.3% in the prior quarter. CEO Mike Coupe said, “We had a strong Christmas week, with record sales, over 340,000 online grocery orders and stellar growth in Argos Fast Track delivery and collection. Online accounted for 20% of the Group's sales during the quarter.” The company noted four priorities: to further differentiate its food proposition, grow non-food categories and deliver synergies, diversify and grow Sainsbury’s Bank, and continue cost savings and maintain balance-sheet strength.

Outlook

Sainsbury expects to achieve EBITDA synergies of £80–£85 million (EBIT£72–£77 million) from the Argos acquisition by March 2018, which is ahead of previous guidance for EBITDA synergies of £65 million (EBIT £58 million). As a result, the company guided for FY18 underlying profit to be moderately ahead of the company-compiled consensus of £559 million. For FY18, which closes in March 2018, analysts expect Sainsbury’s to increase revenue by 8.0% to £28.33 billion, reflecting the consolidation of Argos, which was acquired in September 2016. Consensus calls for EBIT to fall by 2.9% and for pretax profit to grow by 0.2%. The consensus estimate is for GAAP EPS of 16.8 pence in FY18, versus 16.5 pence in the prior year. These estimates were collated before the latest results announcement.