Today I am outlining why I believe shares in supermarket giant J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) are poised to resume their climb higher in line with solid earnings growth.
Supermarket sweeps up as competition crumbles
Sainsbury’s continues to defy the enduring sales struggles of its mid-tier grocery rivals, most notably Tesco and Wm. Morrison, and punch steady market share gains at the expense of its competitors. Indeed, Sainsbury has now posted 35 consecutive quarters of like-for-like sales growth, according to the company’s latest trading update this month.
And I believe that the supermarket should continue to thumb its nose at wider pressure in the UK retail space and punch solid revenue growth. October’s update revealed that, excluding fuel, total sales rose 4.6% during the 16 weeks to 28 September, with like-for-like sales heading 2% higher during the period.
This stonking sales performance continues to drive the chain’s market share skywards, and Sainsbury’s is the only one of the country’s top four supermarkets — which also includes Asda — to have increased its share over the 12 weeks to mid-September. This now stands at 16.6%, according to latest Kantar Worldpanelstatistics.
Like all of the UK’s major grocery retailers, Sainsbury’s has identified online and convenience as major growth drivers moving forwards, and saw sales in these divisions advance 15% and 20% respectively during the second quarter. Indeed, the company accelerated the rate of openings for its smaller stores, and unveiled 31 new outlets in quarter two compared with 19 in the previous three-month period.
The supermarket has cottoned onto changing consumer trends where customers shop more regularly but in smaller doses, and opened just six new large supermarkets in the whole of March-September compared with 50 convenience stores. And new store openings are set to accelerate during the final six months, with Sainsbury’s on track to deliver 1 million square feet of new floor space this year — it has already added 307,000 square feet.
On top of fresh supermarket openings and improvements to its online service, the supermarket’s concerted effort to improve the quality and image of its own-brand products — such as its Taste the Difference premium range — are also instrumental in driving sales higher. Revenues from these items are outstripping those of branded items by two-to-one. And unlike its peers, Sainsbury’s is also effectively managing its general merchandise and clothing division, where sales are growing at twice the rate of food.