Sainsbury’s (LON:SBRY) emerged victorious in the battle between Britain’s two biggest listed supermarkets as Tesco (LON:TSCO) tumbled following a slump in profits.
Both chains reflected on a tough period in the first half, but it was Sainsbury’s which manoeuvred its way through the challenging conditions more adroitly.
Sales in the sixteen weeks to 28 September rose by 5%, with like-for-like sales up 2.1% (2% excluding fuel), prompting chief executive Justin King to boast once again that Sainsbury’s is the only supermarket major currently growing market share.
All of the big four supermarket chains, a group that also includes Morrisons (LON:MRW) and Walmart-owned Asda, have been battling squeezed consumer incomes and inroads into their traditional markets from no-frill chains such as Aldi and Lidl.
“We have delivered strong sales over the quarter, continuing to outperform the market in what remains a tough retail environment,” said King, who hailed a strong performance from its own branded products.
Meanwhile, Tesco’s interim results revealed statutory profit before tax fell 24% to £1.39 billion on sales of £35.6bn – growth of 0.5%, or 0.9% excluding petrol.
The eye-catching figure was the 71% decline in profits to £55mln from the European business, which is still suffering from consumer belt-tightening.
Its shares slumped to the bottom of the Footsie on Wednesday, down 33.7% to 345.8p each, while Sainsbury’s lost 1.2% to 385.5p.
Oriel Securities cut Tesco to ‘add’ from ‘buy’ following the results, which could have been worse had it not been for the robust UK sales performance.
“We had hoped that forecast momentum would pick up rather quicker than it has: the direction of travel remains backwards,” said Oriel analyst Jonathan Pritchard, who also has an ‘add’ recommendation on Sainsbury’s.
“Thankfully, the UK, which is so important for sentiment, is getting a bit better, and that encourages us to stick with a positive recommendation, but only an ADD.”
Shore Capital thinks there is plenty of heavy lifting still to be done by Tesco boss Philip Clarke.
“However, to be clear, we believe that he has undertaken a lot of necessary, hard and good work to date, which positions Tesco better for the future and most critically in our view, creates the position whereby it becomes a cash generative and more shareholder friendly entity,” said Shore’s Clive Black.
Interestingly, he has a ‘buy’ stance on Tesco and a ‘hold’ rating on Sainsbury’s.