J Sainsbury PLC (LSE:SBRY) attempt to keep prices low will eat away at margins, according to Credit Suisse, which has kept its 'underperform' rating, but raised its target price to 200p from 184p,
Credit Suisse predicts somewhere between a 10 to 20 basis point reduction in retail operating margin (0.1-0.2%) over the next three years based on recent Kantar data and Sainsbury’s latest promotion, where it promised an additional £50mln 'investment', taking its current commitment to £550mln.
Additionally, analysts at the Swiss bank also believe the grocer's exposure to general merchandise and clothing will hurt given consumer discretionary spending trends.
Cost-saving benefits, Credit Suisse said, are also finite and as a result, “we expect margins will remain lower for longer.”
Analysts at the bank prefer Tesco due to its higher scale and margins, market-share dynamics and high-quality discretionary exposure.