Sainsbury s shares in biggest jump for 8 years but watch 259p

Has Sainsbury’s discovered the magic ingredient that will save it from UK grocery sector death by a thousand (price) cuts?

The market seemed to think so on Wednesday morning.

News that the UK’s No.3 supermarket had better than expected retail sales in its second quarter than in Q2 last year backed a stream of promising signs this year.

Sainsbury’s has edged past Asda to claim the UK No.2 spot at least twice in 2015.

It nosed ahead by just a hair’s breadth in January and July.

But that was still enough to suggest the return of robust dynamics to its offering.

Researcher Kantar Worldpanel also said Sainsbury’s was the only established UK supermarket to increase market share during a 12-week stretch ending on 13th September.

Sainsbury’s official Q2 reading shows sales from stores open more than a year down 1.1%.

In most industries that would be anaemic, but in UK food retail, recent history has shown that result is the equivalent of a plus.

Especially as the outcome is trending in the right direction— the ‘like-for-like’ sales result, which excludes fuel retail, was a step up from the 2.1% slippage seen in Q1.

They also trumped the pessimistic expectations of analysts who on average expected -1.3%.

The sales beat gave SBRY the confidence to state it will likely now trump full-year profit forecasts too.

2015/16 pre-tax profit at the company should be moderately higher than the £548m consensus forecast.

Note that Sainsbury’s publishes these average forecasts from analysts covering the stock.

The top end of the range is currently £635m.

Even if we split the difference, we may still be looking at a respectable upgrade of about £43m.

 

 

 

To an extent, these wins came from a distinct lack of magic from Sainsbury’s over the last few months.

It has continued to steadily wean itself (and consumers) off ‘promotional activity’.

Improvements to product quality and service financed by cost savings, and re-thinks of store space strategy are also probably feeding through.

But aside from these sensible generic revamps, is Sainsbury’s doing anything truly unique?

It also highlighted this morning a 13% lift to clothing sales from its Back to School campaign, but Tesco et al probably benefited from the resumption of the school term too.

Ditto with summer travel trends. They helped Sainsbury’s Bank Travel Money bureau to its best ever month for travel money in July.

But Tesco probably saw a slice of that slice too.

Elsewhere, improved “accuracy of…demand forecasting” helped Sainsbury’s make smarter decisions.

This helped improve availability, which tends to impress customers, and reduce waste.

Well, we’d expect any 21st Century consumer company to have a grip on analytics.

And we know Tesco has made forays in the same direction.

 

 

SBRY stock is having its biggest one-day rise since February 2007.

But it’s telling that other FTSE 100 grocers also had a great morning.

Morrisons and Tesco shares gained between 7% and 8% at online time on Wednesday.

It has to be said Sainsbury’s volume has been the most robust, with 85% of its 90-day average seen in just 30 minutes.

However, that may be related to an aspect of Sainsbury’s stock trading we highlighted in February.

Sainsbury’s was then, and still is the second-most borrowed stock on the FTSE 100.

16% of its shares were on loan to short sellers at last check.

Morrisons is the most shorted with 20% borrowed.

But Sainsbury’s stock is still probably showing one well-known effect of big aggregate shorts: impressive bounces when sellers are caught off guard.

 

Overall, though, we’re loath to rain on Sainsbury’s parade.

But maybe we’d distribute the autumn sun a bit more widely in the sector.

Signs of a broad grocery sector turnaround are always welcome; even if we suspect that the margins of years past have gone for an Aldi. Permanently.

 

 

For Sainsbury’s shares, the main watch points include its 200-day moving average.

 

 

The stock has significantly underperformed the shares of its ‘Big 3’ rivals by failing to sustainably trade above that barrier since December 2013.

SBRY’s broke through it with today’s leap.

The strength of the move gives the stock its best chance of overcoming a formidable zone of resistance traps spanning from at least 277p to 288p.

Failure to sustain the breach of its 200-day—which currently guards 259.59p—would be a clear signal that investors are warming to Sainsbury’s turnaround story, but need more quarterly convincing.