Jefferies highlights 'weakening trends' at Sainsbury

18th Mar 2014 09:55

Jefferies has retained its 'hold' rating and 350p target price for J Sainsbury, saying that the supermarket chain's fourth-quarter trading update shows "weakening trends".Jefferies said that Sainsbury's trading performance has been "slightly worse than feared" with like-for-like (LFL) sales excluding fuel down 3.1% in the 10 weeks to March 15th. This compared with the broker's forecast for a 2.5% decline and the consensus estimate for a 2.7% fall."There are a number of factors that may have impacted (timing of Mother's Day, Comic Relief and Easter as well as unhelpful weather and the anniversary of the boost from horse meat scandal)," Jefferies said."Arguably most of these were known back in January when the group confirmed its expectation for flat fourth-quarter LFLs despite tough comps (and for full-year LFLs to come in at just below 1%, versus the 0.2% reported today)."The broker said that market share dynamics suggest that Sainsbury has been "struggling to out-trade peers since November 2013", with a coupon-fuelled Christmas being an exception."Ultimately it looks like the combination of discounter growth and lack of volume response to lower inflationary pressures may be catching up with Sainsbury, as it has already with the other UK majors."Jefferies said that the stock's earnings-based valuation remains at the low-end of the group's history, but kept a cautious view given that "forecast risk remains firmly to the downside".The stock was down 0.15% at 310.94p by 10:05 on Tuesday.BC