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Sainsbury’s FY 2015/16 sales decreased by 1.1% to £23.506bn as food deflation remains low and, as the second largest UK grocer, it continues to cut prices. Despite the cost saving plans (£225m), the underlying operating profit for retailing lost ground to reach £635m. Net profit stood at £471m vs. a negative result over the last year, of which £628m was impairments and onerous contract charges. Net debt including perpetual securities accounted for £2.343bn, a slight decrease compared to 2014/15. Sainsbury lowered its pay-out as it proposed a FY dividend of 12.1p per share vs. 13.2p in 2014/15 (vs. 5p expected by our model). According to management, the Home Retail Group acquisition will take place in Q3 16.
Companies: J Sainsbury plc
The FY18/19 ended on a positive note (earnings were ahead of consensus but in line with our expectations). Despite cost savings, the grocery business remains under pressure, and management needs to stem the market share erosion. Argos delivered synergies ahead of schedule and the reduction in net debt is also a positive development. A revival in banking profits and a grocery sales uplift would be crucial stock price triggers in our opinion. We maintain our positive stance due to the cheap valuation.
Sainsbury’s performance during the Q3 and Christmas period was in line with our estimates. The resilience of the food business was comforting but weakness in GM (especially in toys and gaming) was a spoilsport. Online continues to gain strength and management’s plan to increase its contribution to 30% in the mid-term (vs c.20% today) is a step in the right direction. We will tweak our estimates slightly upwards.
Casino’s Q3 performance was a mixed bag; sales and profitability were healthy overall but French same-store sales were flattish. Low tourist numbers in July were followed by positive momentum in the subsequent months. We see more chinks in the armour, however, and Q4 is likely to be do or die in terms of both the operational performance and gross debt reduction. We plan to trim our estimates but will maintain our positive stance given the cheap valuation.
Companies: Casino, Guichard-Perrachon SA