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In what’s an more and more cut-throat market, FTSE 100 retailer Sainsbury’s (LSE:SBRY) has been making spectacular progress and within the final yr (to February) delivered its best market share beneficial properties for greater than 10 years.
Gross sales rose 4.2%, or 3.2% on a like-for-like foundation, reflecting what its chief government says is “a profitable mixture of worth, high quality and repair that prospects love“. To rejoice, it introduced plans to reward shareholders with £250m of particular dividends and a share buyback programme of £200m.
Britain’s second-largest grocery store has plans to construct on its current progress, having acquired 14 new grocery store websites to increase its retailer property. Market situations are powerful, however the grocer’s heavy funding in costs, merchandise, and the pulling energy of its Nectar loyalty programme proceed to draw but extra punters.
Reflecting its current successes, Sainsbury’s has seen its share worth rise 10.1% over the past yr. However can the Footsie grocer proceed its strong momentum? I’m not so certain.
Aggressive pressures
As I say, the enterprise has carried out robustly in an setting of bloody competitors. The query is whether or not it may proceed to take action as worth chains Aldi and Lidl develop their estates, its rivals open swathes of recent comfort shops, and fellow ‘Massive 4’ operator Asda kicks off a bruising new worth conflict.
Reflecting these pressures, Sainsbury’s has stated it expects annual underlying working revenue to flatline at £1.1bn this monetary yr.
Like its rivals, Sainsbury’s can proceed closely discounting to defend its in-store footfall and on-line gross sales volumes. However this might come at a catastrophic expense to its already wafer-thin retail margins (this was 3.17% in fiscal 2025 on an underlying working foundation).
Different threats
The stress on the retailer to chop costs is particularly nice because the cost-of-living disaster endures. And sadly, some economists recommend that client spending energy might stay weak for the remainder of the last decade, if not longer.
In line with think-tank Decision Basis, typical family incomes will rise simply 1% between 2025 and 2030. And for the bottom incomes households, earnings’s anticipated to drop by the identical share over the 5 years.
This outlook’s particularly worrying for Sainsbury’s, given its big Argos basic merchandise division which is extra susceptible to client situations than meals retail.
As if this wasn’t sufficient, meals retailers additionally faces gross sales hazard as weight reduction jabs like Ozempic turn out to be more and more in style, limiting demand for candy treats and different responsible pleasures.
Some 4% of British households now use such medicines, in line with Kantar Worldpanel.
However as its head of retail and client perception on the firm says: “That’s nearly twice as many as final yr, so whereas it’s nonetheless fairly low, it’s undoubtedly a pattern that the business ought to regulate as these medication have the potential to steer selections on the until“.
Purchaser beware
I don’t imagine that these dangers are at the moment mirrored within the valuation on Sainsbury’s shares. Following these current worth beneficial properties, they commerce on a ahead price-to-earnings (P/E) ratio of round 13 occasions, which is greater than the FTSE 100’s broader common.
In consequence, I believe traders ought to take into account shopping for different momentum shares as an alternative.
