Although I lost faith in the supermarket sector some time ago, I retained sneaking admiration for Sainsbury’s (LSE: SBRY), which had appeared to have pulled off a tricky balancing act.
First, it had clung onto its market share tenaciously, far better than struggling rivals Tesco (LSE: TSCO) and Morrisons (LSE: MRW). I was also impressed by how it managed to retain its broadly upmarket status.
In any other industry, a company that had delivered 36 consecutive quarters of growth, as Sainsbury’s did under former chief executive Justin King, would have seen its share price spiral. That didn’t happen at Sainsbury’s. Instead, its share price was down over five years.
If the shares slumped while Sainsbury’s was growing, what will happen now that it’s shrinking?
Bad Bet
Sainsbury’s has been the worst performing supermarket in the past four weeks, during which time its sales fell by 2.2%, according to latest figures from Kantar WorldPanel.
This is the first time in more than two years that Sainsbury’s has performed worse than its big four rivals Tesco, Morrisons and Asda.
Sainsbury’s also suffered a slight fall in its market share, from 16.5% to 16.4%, year-on-year.
I’m worried there is worse to come, and I’m not alone, with the share price falling faster than any other stock on the FTSE 100 when the news broke.
Sainsbury’s was already the second most shorted stock on the FTSE 100, as hedge fund managers bet on bad news.
Shopping For Shares
Bad news for Sainsbury’s doesn’t necessarily mean good news for rival Tesco, however. Its market share has fallen a mighty 4% in the last 12 months, from 30.2% to 28.8%.
The grocery sector as a whole is battling against a deadly combination of falling prices and falling food sales, as cash-strapped shoppers show little gratitude for recent price cuts, claiming the supermarkets must have been overcharging before.
There was good news for Morrisons, as its price-cutting campaign delivered a 2.4% rise in sales over the last month. Brave contrarians may see this as a buying opportunity. I’m not that brave.
For Richer And Poorer
The growth trajectory at Sainsbury’s has been flattening for some time, and this week’s slippage suggests there could be more trouble in store.
Aldi and Lidl are rampant. Their sales are up 29.5% and 18.3% respectively over the past 12 months. Shoppers originally went there for low prices, now they are returning to admire the quality.
Despite its attempts to stay aloof, Sainsbury’s lacks the aspirational status of Waitrose, which could ultimately force it to join in the price-slashing melee.
It has also at the mercy of wider changes in shopping trends, as people pick up bits and pieces when they need them, rather than doing a big weekly shop, and battle to cut down on food waste.
Those who do have money to spare are using more of it eating out in cafes and restaurants, leaving supermarkets squeezed between the worried and the wealthy.
Best Before?
The Sainsbury’s share price is down 21% over the past 12 months. This has knocked its valuation to just 9.3 times earnings, so it’s a bargain by some metrics. Its 5.7% yield is undoubtedly juicy, but likely to dry up some time soon.
Tesco is cheaper at 7.8 times earnings, and maybe its run of bad luck is due to turn, just as good luck runs out on Sainsbury’s. But  its 5.92% yield also lacks sustainability.
Some investors specialise in riffling through the bargain bins, looking for stocks that have passed their sell-by date. But you would need a strong stomach to buy Sainsbury’s today.