J Sainsbury PLC (LSE:SBRY)’s focus on price is working, said Hargreaves Lansdown, which also believes it has a couple of sources for Christmas cheer.
City analysts noted that, despite an unexpected fall in UK retail sales in November, food sales rose strongly ahead of Christmas.
This may be in part to Sainsbury's aggressive price action, allowing it to keep its prices low, “offering its strongest value proposition in years,” Hargreaves Lansdown said.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown said Sainsbury's is the only one of the big four growing volume share.
However, while this approach is the right move from a competitive angle, it is hitting profits, down 8% in the first half.
While a grocer, Sainsbury's also has increased exposure to general merchandise thanks to its ownership of Argos.
Hargreaves Lansdown said that such a level of exposure is risky as real wages are falling, with general merchandising and clothing sales down 6.1% and 6% in the first half for Sainsbury.
However, recent figures suggest sales for department and homeware are holding up better than expected.
“This could mean that Argos puts in a more resilient showing than we’re expecting,” said Lund-Yates.
“No matter what happens this Christmas, Sainsbury's has a stronger balance sheet than previous times and free cash flow is expected to run into the hundreds of millions,” Lund-Yates added.