Amid accusations of profiteering against the grocery industry, J Sainsbury PLC (LSE:SBRY) took pains to mention several factors that analysts said should make growth more challenging in the coming quarters.
However, the FTSE 100-listed supermarket group and most analysts remain confident that it will still hit its full-year profit target.
In its first-quarter update the orange-branded chain celebrated the first quarter in almost three years when sales volumes had grown.
With headlines about the 'greedflation' of the industry still raging, chief executive Simon Robert said the group is "putting all of our energy and focus into battling inflation" and flagged that "food inflation is starting to fall", reinforcing recent industry data and similar observations from analysts.
Following the conference call with analysts, Barclays made the point that the rest of this year is likely to see "disinflation rather than outright deflation".
Not that many prices are actually going to fall, even though global food prices actually dropped for more than 10 consecutive months.
Sainsbury's like-for-like sales growth is still being driven by high inflation, said Orwa Mohamad, an analyst at Third Bridge.
Industry experts he polled said they expect prices to “come down as we come out of the summer into September”.
Sainsbury’s also flagged that the next few quarters’ sales will need to beat tougher comparative figures for the second and subsequent quarters last year related to weather and more normal availability of general merchandise (GM), while there are also fewer seasonal ‘events’ coming up that tend to drive outperformance over its rivals, and the full impact of Argos closing all its stores in Ireland.
Analysts at Barclays said: “Even with the cautious comments on the sales outlook we think that Sainsbury’s underlying performance is strong in both Grocery and GM – based on market share gains.”
Refreshing the forecast model to reflect the 9.8% sales growth in the first quarter, Barclays top-line forecasts reduce due to fuel sales, “but our profit forecasts barely change”, with a profit before tax figure of £690m that is at the upper end of the company’s £640-700mln guidance range.
UBS analysts were given more optimism by the update, raising their PBT modestly to £685mln from £674mln.
“Sustained grocery momentum and a better Argos performance than expected is likely to make us more constructive going forward,” they said.
Likewise, Clive Black at Shore Capital, one of Sainsbury’s house brokers, said it was a “very strong” update and has not adjusted its profit or earnings estimates.