Thursday 30th April
Underlying profit before tax exp. £584 million
Higher Revenues & Costs
Sainsbury is set to report full year results in unprecedented times. The current lock down climate should be good news for the retail sector in general as panic buying and stock piling will boost sales and turnover.
Sainsbury’s upcoming results will not show much evidence of the sales boost from panic buying because they cover the 12 months to 7 March. It was only in the final fortnight of March that panic buying took hold and frantic stock piling of essentials began in the run up to lock down.
As a result, guidance will be more important than ever. Not only will forward guidance cover the panic buying, but also the closure of cafes and restaurants which has benefited food retailers.
However, the other side of this equation is cost. When Tesco released its numbers the impact of cost amid the increased demand caught investors off guard. Not only is there the extra cost of hiring to fill the rapidly emptying shelves and for deliveries, but also to cover the costs of covering employee sickness.
It is worth remembering that Sainsbury's has another string to its bow, by way of Argos. Whilst Argos stores are closed, delivery of electronic games, entertainment through lock down, and office furniture as more people work from home could also support revenue.
Announcements surrounding the firm’s dividend will also be closely watched. Tesco received significant criticism following its decision to pay £635 million to share holders after receiving a similar amount from the government by way of business rates holiday for the rest of the year.
Whilst the share price has rallied from the March low, it is still down 14% this year. The reason that we haven’t seen a more sustained uplift in the share price is because panic buying is only a temporary phenomenon, whilst it will impact a quarter’s results and possibly full year results, it isn’t a fundamental change in consumer demand.
That said Sainsbury’s is likely to have picked up new online customers during this pandemic which could well stay loyal to the company after the coronavirus crisis ends.
After picking up 14% from March lows the share price has stalled at just shy of 202p a key level for the stock and down around 12% over the year to date. A meaningful move through resistance at 202p could see more bulls jump in.
Immediate resistance can be seen at 202p (50 sma), 204p (high 17th April) and 206.8p (high 7th April)
Immediate support can be seen at 196.5p (today’s low) prior to 192 (low 8th April).