- Stock surges as much as 14% on signal of improving outlook
- Gain is biggest since 2009 and lifts shares of other grocers
J Sainsbury Plc posted its biggest share gain in almost six years as Britain’s third-biggest supermarket said profit will beat expectations, surprising investors at a time when U.K. grocers are embroiled in a price war with German discounters.
The stock surged as much as 14 percent to 261 pence, the most since October 2009, when stake building by Qatar’s sovereign wealth fund was fueling takeover speculation.
Both sales and cost savings are ahead of expectations after two quarters of the fiscal year, Sainsbury said in a statement Wednesday. The news provided a rare bright spot for U.K. grocers, whose earnings have dwindled over the last 18 months as an increasing number of shoppers have defected to Aldi and Lidl. Shares of market leader Tesco Plc and Wm Morrison Supermarkets Plc also gained.
“This is the first time we’ve seen a U.K. supermarket company guide up profits for a long time," Richard Clarke, an analyst at Sanford C. Bernstein, said by phone.
The share price gain caught out short sellers, who seek to profit from a falling share price. The number of bets taken out against Sainsbury’s share price is equivalent to 16.1 percent of its shares outstanding, according to data compiled by researcher Markit. That’s the second-highest level of any company in the U.K. FTSE 100 Index.
Sainsbury’s news gave a boost to the wider industry: Tesco gained as much as 5.4 percent to 180.5 pence. Morrison advanced as much as 5.8 percent to 165.2 pence.
Full-year pretax profit will “moderately” surpass analysts’ estimates of 548 million pounds ($831 million), London-based Sainsbury said Wednesday.
Revenue at stores open at least a year fell 1.1 percent, excluding fuel, in the 16 weeks ended Sept. 26, the grocer said. That beat analyst estimates for a 1.3 percent drop and compares with a 2.8 percent decline in the same period last year.
Sainsbury’s convenience-store business has helped the company mitigate declining revenue at its larger stores, as consumers increasingly opt to shop more frequently for fewer items. The retailer opened 27 new smaller outlets in the quarter.