Sainsbury’s Shares Surge as Christmas Sales Ease Concerns

  • Holiday sales growth at Argos chain confounds skeptics
  • Stock advances as much as 7.1%, most since January last year

J Sainsbury Plc shares surged the most in more than a year after better-than-expected holiday sales provided a positive cap to an otherwise disappointing year, continuing the supermarket sector’s strong Christmas run.

The stock rose as much as 7.1 percent -- the steepest intraday gain since Jan. 5 last year -- after same-store sales at Sainsbury supermarkets increased 0.1 percent, excluding fuel, beating the median estimate for a 0.8 percent drop. Third-quarter revenue also topped projections at the Argos general-merchandise chain after its acquisition last year.

The report displayed Sainsbury’s resilience after its results disappointed analysts for much of last year. The grocer has said price cuts taken to counter the incursions of discounters Aldi and Lidl could squeeze full-year profits, while the competitive environment got tougher due to revivals at market leader Tesco Plc and Wm Morrison Supermarkets Plc, which on Tuesday posted its best Christmas sales in seven years.

“After a mostly miserable 2016, the struggling brand’s sighs of relief are audible,” said John Ibbotson, director of consultant Retail Vision. “But talk of a turnaround is a touch premature. So far, it’s a case of Sainsbury’s steadying the ship rather than plain sailing.”

Much of the third-quarter sales growth was fueled by areas outside of Sainsbury’s main grocery business, which remains in decline. Clothing sales rose 10 percent as the company continued to take share from U.K. fashion retailers such as Next Plc, which cut its profit forecast this month after reporting disappointing Christmas sales.

The performance of clothing helped mask a decline in sales of groceries, which fell slightly on a like-for-like basis, according to interim Chief Financial Officer Ed Barker.

Argos Growth

Growth at the Argos general-merchandise chain also provided a boost for Chief Executive Officer Mike Coupe, who has been contending with investor skepticism over the 1.4 billion-pound ($1.7 billion) acquisition. Driven by demand for electronic goods such as mobile phones and televisions, same-store sales at the chain rose 4 percent, beating analyst estimates for 1 percent growth.

“The market was expecting a sign that the Argos acquisition was sound and a strong Christmas period suggests it is,” said Phil Dorrell, partner at consultant Retail Remedy.

The shares advanced 4.5 percent to 270.5 pence at 11:06 a.m. in London, and have risen 8.5 percent this year.

Other highlights:

  • Barker said Sainsbury is “comfortable” with consensus estimates for full-year pretax profit of 573 million pounds
  • Online grocery sales rose more than 9 percent
  • Tesco is scheduled to announce holiday sales Thursday
  • Lidl U.K. on Wednesday reported a 10 percent rise in total Dec. sales
    Before it's here, it's on the Bloomberg Terminal.