When Sainsbury’s opened its first self-service supermarket in Croydon in 1950, one lady threw a wire basket at Alan Sainsbury, the joint managing director, for his effrontery in expecting her to serve herself. We must hope that the annual shareholders’ meeting in London on July 6 will be better-behaved, even though investors’ patience has been tested in recent years. The shares, which were as high as 600p in 2007, fell to 170p last October before mounting a decent recovery.
With a market share of 15.5 per cent, J Sainsbury trails Tesco’s 27.5 per cent and is neck-and-neck with Asda. Morrisons, Lidl and Aldi, meanwhile, draw in shoppers keen to find affordable food in the teeth of rampant inflation.
Although Sainsbury’s has done well to outstrip Waitrose, its traditional rival for affluent wallets, it retains a touch of its genteel heritage. That DNA shines through in the latest annual report, which aches with hand-wringing by the chairman and the chief executive over the impossible task of simultaneously pleasing customers, suppliers, staff and shareholders as the cost of living soars. The company has spent more than £560 million keeping prices low over the past two years.
Group sales for the year to March 4 were £35.1 billion, up 5.4 per cent on the year and up by 8.5 per cent on the largely pre-pandemic year of 2019-20. Of that, retail accounted for £34.6 billion, up 5.2 per cent. Pre-tax profit was £690 million, down 5 per cent on the year but ahead by 18 per cent on pre-Covid. Underlying earnings per share were 23p, down 9 per cent on 2021-22 and up 16 per cent on 2019-20.
Sainsbury’s has diversified into general merchandise, clothing and furniture under the brands Argos, Tu and Habitat. It also has a bank. That can be read as a smart diversification into higher-margin areas, or a bundle of distractions. Sainsbury’s grocery sales of £21.7 billion overshadowed the rest of its divisions. The biggest improvement was from petrol forecourts, up 23.4 per cent to a still-modest £6 billion. These businesses are being cross-fertilised by, for example, putting Tu fashions on the Argos online platform and by letting customers use Nectar points to buy them. Online sales are up 46 per cent on pre-pandemic levels. Nevertheless, the new Food First strategy signals that the big prize is persuading followers to return.
Analysts at Citi recently edged down their rating on the shares from “buy” to “neutral”. “Sainsbury’s has done little wrong, executing on its strategy to drive value into its offer and to take cost out,” they said. “However, with a flat to ‘small down’ year-over-year guide (consistent with peers) and a 13 times price-earnings ratio for 2024-25, we move to the sidelines.”
That doesn’t take account of takeover possibilities. Sainsbury’s is valued by the market at £6.4 billion and 29 per cent of the shares are held by three parties: Qatar Holding; the Vesa Equity Investment vehicle of Daniel Kretinsky, the Czech billionaire; and Bestway UK Holdings, a Pakistan-based conglomerate chaired by Sir Anwar Pervez. None is noted for passive investing beyond a short period.
Sainsbury’s represent a convenient way to bet on Britain’s eventual economic recovery. Simon Roberts, its chief executive, says that Food First is delivering strong momentum, encouraging him to lift the profit forecast for the present year to £700 million. Meanwhile, investors can console themselves with a 4.8 per cent dividend yield that should be dependable for the next few years.
ADVICE Buy
WHY Management should be capable of taking advantage of opportunities while takeover prospects gather momentum
Halfords
Delay means dismay. It’s an old stock market adage that will cast a shadow on today’s annual results from Halfords, Britain’s leading provider of cycling and motoring products and services, including MOT tests.
It postponed last Thursday’s scheduled results announcement because BDO, its auditor, had asked for more time to complete its standard audit procedures. The shares initially dipped after that news, then partly recovered, although they’re still a long way from the 363p they reached in November 2021.
Outsiders can only imagine the fury among Halfords and its advisers after BDO made its request. A highly unusual move, it also sows doubt among investors, lenders and suppliers. Significantly, last week’s announcement avoided the dread word “delay” in favour of “an update on timing”.
The company still expected to report that underlying pre-tax profit for the year to March 31 would be “within its previously guided range” of £50 million to £60 million, down from last June’s forecast of £65 million to £75 million. Profits for the financial years 2021 and 2022 were £99.5 million and £89.8 million, respectively.
We may learn today whether the cause of the hold-up was a problem at Halfords or at BDO.
Last October Halfords spent £37.2 million on Lodge Tyre, adding 50 garages and 248 vans to the previous respective figures of 606 and 445. An update in January said Lodge was trading in line with expectations.
The more general headache investors will want to be reassured about is the company’s shortage of mechanics, a cause of the profits downgrade. Graham Stapleton, the chief executive, said he had been struggling to poach enough skilled technicians to meet higher demand as motorists and cyclists repair rather than buy new. Mwanwhile, Aldi, Lidl and other discounters are nibbling away at Halfords’ range of impulse-buy products.
Stapleton has predicted that pre-tax profits will exceed £100 million as trading conditions improve, but that has to include large helpings of hope and prayer.
ADVICE Avoid
WHY Too many threats and uncertainties
