Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY) shares received a boost from Asda's latest trading update, with analysts arguing that the struggling supermarket group's continued market share losses underline the resilience of its larger listed rivals.
Asda reported first-quarter like-for-like sales down 1.3%, an improvement on the 4.2% decline recorded in the previous quarter but still well short of the stabilisation many investors had hoped for.
Channelling Obi-Wan Kenobi, JPMorgan described the figures as "not the Asda turnaround story you were looking for", noting that more than a year after the grocer launched a major price reset, underlying sales remained in decline.
The bank said that in an inflationary grocery market, the figures implied continuing volume losses and pointed to significant pressure on profitability. EBITDA missed JPMorgan forecasts by 15% and was down 17% from a year earlier, while profit in Asda's core supermarket business fell sharply.
"For a business that exhibits such inherently high operating leverage and one that is all-in on price leadership, this is a worrying trend," the JPM team said.
The weak performance is likely to be read positively by investors in Tesco and Sainsbury, which have spent the past two years fending off renewed competition from Asda.
Shore Capital said Asda was still losing market share and that its recovery was taking longer than expected.
Analyst Clive Black said that trading conditions remain less than ideal across the grocery sector, but he noted that both Tesco and Sainsbury have continued to gain market share in recent years.
Black predicted that forthcoming first-quarter updates from Tesco and Sainsbury are likely to "heavily trail" tough comparatives from last year, "with value growth perhaps a little more price than volume driven compared to the updates of recent years".
He added that earnings upgrades "feel challenging at this time", noting wider-than-usual guidance from both firms in the spring against a challenging collective backdrop.
Shares in Tesco rose 1.5% to 436.8p and Sainsbury gained 1.8% to 301.6p in early afternoon trading on Monday.