What to expect from Sainsbury’s results after Tesco’s growth warning

Supermarkets are having to fight hard to retain share

Great Britain grocery market share

Great Britain grocery market share

The UK’s second largest supermarket group Sainsbury’s (SBRY) is due to report its full year results for the 12 months to 4 March 2023 on 27 April with the focus likely to be on earnings guidance for the current financial year.

Big rival Tesco (TSCO) basically warned the market to expect zero earnings growth in the year ahead when it posted its full-year figures on 13 April. The company is trying to keep prices down for consumers and retain its market share.

As the latest data from market research firm Kantar data shows (see table), Tesco retains a dominant position in the UK groceries space.

For the year just gone, Sainsbury’s is hoping to report pre-tax profit towards the upper end of the guidance range of £630 million to £690 million. Sainsbury’s also expects to generate retail free cashflow of around £600 million ahead of previous guidance of at least £500 million.

At the end of January, Sainsbury’s shares received a boost as privately-owned wholesaler Bestway said it had bought or agreed to buy 80.8 million shares representing a 3.45% stake in the supermarket. Shares at the time of the announcement on 23 January jumped to a nine-month high of 251p. Investors will be closely monitoring Bestway’s future stake building plans as it seems to be one of the main drivers of the share price.

Loyalty Scheme Wars

Earlier in April Sainsburys announced that it had started offering lower prices for members of its Nectar loyalty card scheme escalating the battle between supermarkets to win customers during the cost-of-living crisis.

Tesco (TSCO) already offers the same deal for members of its Clubcard scheme in response to being under pressure from German discounters Aldi and Lidl.

Tesco CEO Ken Murphy believes Tesco is still competitively priced compared to Aldi and Lidl: ‘We are the most competitive we have ever been, with our market-leading combination of Aldi Price Match, Clubcard Prices and Low Everyday Prices changing the way customers perceive value at Tesco.

Shore Capital analyst Clive Black responded to Tesco’s latest results positively. He observes: ‘For the 2024 financial year we expect to nudge up our EPS (earnings per share) forecasts, viewing a free cash flow yield of circa 8% as attractive set alongside capital discipline and good cash compounding credentials.’

Black adds: ‘The good all-round execution has meant that Tesco has been robust in its relative value proposition, manifested in a corresponding stable market share position.’