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The J Sainsbury (LSE: SBRY) share worth stays regular, though the UK grocery store big is the newest to report strain from escalating worth wars.
With full-year outcomes for the 12 months to March 2025, the corporate stated it expects no development in retail underlying working revenue within the 2025-26 12 months. The 12 months simply ended introduced in £1,036m. However Sainsbury solely expects to report about the identical once more for the approaching 12 months.
Value wars
In March Asda launched a brand new marketing campaign reducing the costs of round 1,500 strains to attempt to win again falling gross sales. Since then Tesco spoke of “an additional improve within the aggressive depth of the UK market” in its FY outcomes launch. It says it expects adjusted working revenue to dip in 2025-26.
Nonetheless, no less than Sainsbury isn’t predicting a fall in revenue as Tesco is. And I reckon that reveals a profit from its barely extra elevated market place, the place it isn’t slugging it out for the bottom of the low in pricing.
Traders don’t appear too fazed by the competitors menace. The Sainsbury’s share worth initially rose 4% when the market opened. As I write it’s softened to about 1.5% forward. That’s not a lot, however it’s optimistic.
We would see a flat interval this 12 months. However it will be on the again of a really strong 2024-25. And I nonetheless charge it as a comparatively optimistic outlook for a corporation in such a pressured sector.
Revenue and money
That £1,036m retail underlying working revenue represents a 7.2% rise on the earlier 12 months. Whole underlying revenue earlier than tax jumped 8.6% to £761m. Underlying earnings per share noticed a barely smaller, however nonetheless welcome, 4.5% achieve.
However right here’s the place I feel Sainsbury may stand out for long-term dividend buyers.
Retail free money movement of £531m enabled the corporate to carry its full-year dividend by 3.8%. That’s properly above the UK’s slowing inflation charge. The previous 12 months additionally gave shareholders a lift within the type of a £200m share buyback.
Plans for 2025-26 embody additional buybacks of no less than one other £200m. And we must always see a particular dividend, funded by financial institution disposal proceeds of £250m. Is that this trying like a money cow, or what?
Hazard forward?
Debt could be one of many greatest killers of long-term dividend prospects. And at first look, I wasn’t too happy to see internet debt at Sainsbury rise by £204m over the 12 months to £5,758m.
However trying nearer, that features lease liabilities, that are actually only a dedication to future spending. Excluding lease liabilities, internet debt drops to only £264m. That doesn’t fear me within the slightest.
There are nonetheless dangers forward for Sainsbury in as we speak’s unsure market. The corporate may not anticipate to be hit too onerous by worth competitors within the coming 12 months. But when we’re within the sort of lengthy cut-price struggle we’ve seen up to now, that would hand an enormous benefit again to Tesco.
Nonetheless, with a forecast dividend yield now as much as 5.2%, Sainsbury must be value critical consideration for earnings buyers.
