Sainsbury Predicts Return to Outperformance as Grocers Struggle

J Sainsbury Plc predicted a return to outperforming the U.K. supermarket industry after the first improvement in sales volume for more than a year.

The grocer is seeing the first “green shoots” of recovery in terms of the number of products sold, Chief Executive Officer Mike Coupe said Tuesday on a conference call, although revenue continues to decline amid record deflation, as food retailers cut prices to keep up with discounters Aldi and Lidl.

Like its three largest competitors, Sainsbury is losing market share as more Britons turn to the budget chains. Coupe’s forecast that the supermarket will again outpace the industry comes at a time when market leader Tesco Plc is showing signs of revival under new CEO Dave Lewis.

Sainsbury “could be particularly negatively impacted by a sustained better outturn from Tesco U.K., making Mr. Coupe’s assertion that Sainsbury will outperform its peers all the more interesting,” Clive Black, an analyst at Shore Capital in Liverpool, England, said in a note.

Sainsbury said Tuesday that sales at stores open at least a year fell 1.9 percent in the 10 weeks ended March 14, excluding gasoline. That beat the median estimate of 12 analysts in a Bloomberg News survey for a 2.6 percent drop.

The shares rose 1.5 percent to 272.7 pence at 9:55 a.m. in London, trimming the stock’s 12-month decline to 12 percent and valuing the company at about 5.2 billion pounds.

Price Cuts

Like all its main competitors, Sainsbury is plowing hundreds of millions of pounds into cutting prices. The grocer has lowered prices on more than 700 products since January as part of a 150 million-pound ($223 million) annual investment.

Such discounting is driving unprecedented deflation in the industry, with prices dropping 1.6 percent in the 12 weeks through March 1, according to researcher Kantar Worldpanel.

“We expect the market to remain challenging for the foreseeable future,” Coupe said in a statement. “Food deflation is likely to persist for the rest of this calendar year, and competitive pressures on price will continue. However, we believe that the great value and quality of our products, combined with a strong focus on developing our multi-channel offer, will enable us to outperform our supermarket peers.”

Price cutting helped stimulate customer purchases in the latest quarter, Sainsbury said. Selling volume on discounted products grew at a “disproportionately faster” rate of about 3 percent in the period, Coupe said.

“With volume now returning, we see that Sainsbury’s can continue to keep margins healthy,” Bruno Monteyne, an analyst at Sanford C. Bernstein, said in a note. “Unlike peers, Sainsbury’s has managed to hold onto its margins.”

The company is due to report full-year earnings May 6.

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