J Sainsbury PLC (LSE:SBRY) is well placed to outperform the wider supermarket sector, according to RBC Capital Markets, after recent numbers showed how it is winning market share in groceries and early signs of a recovery at Argos.
Following meetings with management after last week's first-quarter results, the broker said the UK's second-largest grocer was benefiting from improvements in pricing, product innovation and better stock availability, helped by greater use of artificial intelligence in forecasting and supply chain management.
RBC believes Sainsbury's is aiming to grow volumes about one percentage point ahead of the market this year.
Over the past five years, the group has added around 1.2 million customers doing larger weekly shops, underpinned by improvements to food quality and store refurbishments.
New selling space is also expected to contribute to growth this year.
The broker highlighted strong momentum online, where sales rose 12.5% in the first quarter. Around half of the group's grocery volume growth is coming from online channels, with the OnDemand business and partnerships with Uber Eats and Deliveroo helping to attract new customers.
RBC was also encouraged by evidence of improving trading at Argos, where volumes grew about 2.2% in the first quarter. A broader product range, an improved app and the launch of Argos Pay are predicted to boost growth.
The broker reiterated its 'outperform rating and 375p price target, arguing that Sainsbury's strong cash generation and track record of cost savings should support further profit growth and additional shareholder returns.
