J Sainsbury PLC (LSE:SBRY) is heading into its half-year results with a touch more spring in its step.
Shore Capital expects underlying retail operating profit of £485 million for the first half, down from £503 million last year, but still on course to meet guidance of “around £1 billion” for the full year.
The supermarket giant has nudged up its grocery market share, helped by steady volume growth despite shoppers facing stubbornly high food inflation.
Its price-matching with Aldi and personalised Nectar offers continue to do the heavy lifting, though management has accepted this means slimmer margins. Shore Capital reckons Argos, often the problem child, has had a better run this time and is helping to soften the blow.
The wider backdrop remains tricky. Asda has been noisy on price but distracted by an IT overhaul, Tesco PLC (LSE:TSCO) is holding its ground, and new government costs such as extended producer responsibility and higher National Insurance are adding more than £50 million to Sainsbury’s bills in the first half alone.
Still, Sainsbury’s Food First strategy under chief executive Simon Roberts has rebuilt confidence.
Store space is being reallocated towards groceries, the clothing line Tu is stabilising, and a handful of Homebase and Co-op sites are being converted into convenience outlets.
Progress on offloading the financial services arm should also free up cash, with at least £250 million promised to shareholders via a special dividend.
The shares, at 324p, trade on 14.8 times forecast earnings for this year, with a dividend yield of 4.2%.
Add in a buyback programme and ShoreCap sees enough to keep the stock as a core holding.
For the second half, the job is clear: deliver £515 million of operating profit, keep the tills ringing through Christmas, and prove that Sainsbury’s recent momentum is more than just a summer fling.