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  • Is Justin King of Sainsbury the Fabio Capello of retailing? 0 comments
    Sep 21, 2009 9:22 AM | about stocks: JSAIY

    (Courtest of Fatprophets.co.uk) Having overseen the eighteenth successive quarter of sales growth at supermarket giant J Sainsbury (LSE, SBRY), it is little wonder that group CEO Justin King is being labelled the Fabio Capello of the retail world. 

    The company’s dynamism has meant that sales (unlike for most) have continued to grow during the recession thanks in part to the increased roll out of the economical ‘Basics’ range.  However, with the economic climate brightening, other factors rather than price will determine consumer behaviour.  And having made a successful investment in price reductions management’s focus has now shifted to an aggressive expansion of locations which the recently announced £445 million capital raising will facilitate.

    In our view, the placing is an astute move.  With plans for fifty new stores in 2009/10 and a further 100 stores in 2010/11, the placing has fortified the group’s balance sheet and has enabled management to increase planned capital spending in the next two years by 25% to £2 billion. 

    If recent performance is anything to go by, more space should translate to greater profits.

    During the 12 weeks to 13 June 2009 like-for-like sales climbed 7.8 per cent excluding fuel and VAT (the rate of which changed between periods).   Importantly, customer numbers increased to over 18.5 million per week and basket size has grown as the company’s investment in price and bolstering product ranges paid dividends.

    Sainsbury’s expansion will place yet further pressure on rival Tesco, whose market dominance has been eroded of late by its rivals Asda, Sainsbury’s and Morrison’s.  In their most recent battles, Sainsbury’s has regularly secured the upper hand over Tesco and its 7.8 per cent growth eclipsed Tesco’s 4.3 per cent over the same period.  We see this trend continuing and believe Tesco will face the most robust challenge since it became the industry’s dominant player 15 years ago.  

    Encouragingly, 40 per cent of Sainsbury’s new space will be devoted to non-food items and the company’s burgeoning product range is central to our bullish outlook.  Both the company’s TU clothing range and Home ranges continued to grow strongly across the previous quarter.



    Sainsbury’s is also managing to cash in on a rapidly growing area of retail, online shopping.  Sainsbury’s online food home shopping service weighed in with a 20 percent jump in sales during the quarter and with the recent launch of its online non-food offer, ecommerce will bolster earnings to an even greater degree going forward.  And not to be overlooked, ‘Sainsbury’s Bank’ is playing its part in bolstering group earnings. 

    From a financial perspective, the company stands on as sound a footing as ever.  At the last time of asking (for the year ending 21 March 2009), gearing had increased to 38% (up from 30% in 2008), however we remain comfortable with this level and are encouraged by interest cover of almost 6 times.

    On the valuation front, the company’s shares trade on a forward price earnings multiple of 15 times and are ably supported by a dividend yield of around 4 percent.

    Stocks: JSAIY
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