Sainsbury s shares fall despite another earnings outperformance

Sainsbury’s shares were amongst the early fallers in the FTSE 100 on Wednesday despite the retailer reporting a strong set of half year earnings and 31 consecutive quarters of like for like sales growth.

In the broader market the FTSE 100 fell 29pts by 8.24am, with much of the drag emanating out of heavyweight stocks such as Royal Dutch Shell, GlaxoSmithKline and Marks and Spencer’s all going ex-dividend today, knocking a combined 10.7pts off the FTSE 100.

Sainsbury’s earnings top expectations
Sainsbury’s, Britain’s third largest retailer, reported that profits before tax rose 5.4% for the first half of the year to £373m with total sales growing by 4% to £13.36bn. Like for Like sales continued to grow consistently, +1.7% for the period, meaning that the UK retailer has now enjoyed 31 consecutive quarters of like for like sales growth.

Most analysts had expected Sainsbury’s underlying profits to come in at the £371m level and so in this sense, this is yet another earnings out-performance by Sainsbury’s. Indeed, the reaction in the markets however was rather muted but this is to be expected given the fact that the retailer’s shares price has outperformed the broader market comprehensively this year. Sainsbury’s shares have rallied 13.8% in 2012 thus far, trouncing a 20% fall in the share prices of rivals Tesco and Morrisons.

The fact is that Sainsbury’s continues to grab market shares from competitors, with Kantar stating that last month saw the firm increase share by 0.1% to 16.7%, the highest market share it has attracted in almost a decade.

Undoubtedly Sainsbury’s is in a good place, the question investors are asking themselves however is that with a share price that has rallied close to 15% this year alone, how much more joy is there to come, given that Tesco has begun an aggressive change of tact to focus on its core home food markets and by its own admission, is turning the corner, despite reporting a drop of 12.4% in their half year earnings recently.

Sainsbury’s shares fell 1.4% in early trading.

There has been a raft of earnings out today in the broader market, with ICAP shares falling 6.9% after the world’s largest interdealer broker reported a 25% fall in operating profits as the wholesale markets continued to provide extremely challenging. Amec shares topped the large cap gainers list, rallying 2.1% after the firm reported that trading was in line with expectations and was on track to deliver double digit underlying revenue growth for the full year.

Bank of England Inflation Report out at 10.30am
The Bank of England inflation report (quarterly) will be the big event to watch in the morning session and give traders a chance to gauge any change to growth and inflation outlooks. The market is not expecting a dramatic change in stance from previous medium term guidance of 2% growth  and 1.8% inflation in 2014, but any revisions must be watched carefully, particularly to inflation given that many are convinced it was yesterday’s sharp rise in inflation to 2.7% that convinced the BoE to hold fire on more asset purchases.