J Sainsbury PLC (LSE:SBRY) core grocery business is expected to move up a gear with non-food lines struggling, said Jefferies in a preview note ahead of second-quarter numbers on July 2.
It forecasts first-quarter grocery sales growth of 5.0%, slightly below industry data. Argos and clothing segments are anticipated to perform poorly, with sales declines of 6.0% and 6.0%, respectively, due to tough comparisons and delayed seasonal sales.
Jefferies notes that Sainsbury's stock has been lagging behind its UK retail peers, with a 2% increase since late April compared to an 8% rise for the sector as a whole.
However, this underperformance is seen as temporary. Analysts expect improvement from the second quarter onwards, driven by a better consumer environment and easing comparisons.
The gradual shift from general merchandise to food in stores is expected to enhance both sales and margins.
In a note to clients, the American investment bank said: "We forecast ongoing strength in core grocery in Sainsbury's Q1 but see a muted performance from Argos and clothing."
It added that the tough comparison structure has contributed to the stock's recent underperformance versus Tesco and the broader UK retail sector. With the weather turning and consumer confidence improving, Jefferies believes this presents a buying opportunity, especially on any temporary weakness.
It maintains a "buy" rating for Sainsbury's with a price target of 300p (263p currently). The investment bank cites Sainsbury's potential for margin expansion and free cash flow growth as key factors.