Sainsbury's shares spark after profit upgrade, buybacks

(Sharecast News) - UK retailer Sainsbury's on Thursday lifted full-year profit guidance and increased shareholder payouts after interim earnings and sales beat expectations, sending shares in the chain more than 6% higher. The company said it now expected annual retail underlying operating profit of more than £1bn compared with prior guidance of around £1bn. It also unveiled plans to add an extra £150m from the sale of its banking unit to share buybacks this year and in 2026/27.

The supermarket chain delivered a 0.2% rise in retail underlying profit to £504m for the 28 weeks to September 13. Retail sales, excluding VAT sales tax and fuel, rose 4.8% to £15.6bn, driven by a 5.2% rise in grocery sales.

Pre-tax profits rose 5% to £271m in the half year after taking a £69m one-off hit related to restructuring in its retail stores, including the closure of cafes and deli counters.

House broker Shore Capital upgraded profit expectations by £20m to £1.02bn.

Sainsbury's also said it would be pay out a £250m special dividend to shareholders, after proceeds from the sale of its bank came in ahead of expectations at more than £400m.

Dan Coatsworth, head of markets at AJ Bell said the chain had been able to resonate with shoppers "where price is the most important factor" as rivals like Asda and Waitrose struggled, while it also "managed to stand its ground" against the German discounters Aldi and Lidl.

"So far, so good, but the market dynamics are constantly shifting. Asda is determined to stage a comeback, and the prospect of a price war means it is one to watch. Tesco continues to nudge up its market share, and Lidl is quietly becoming a much stronger player, according to industry data. It begs the question of how Sainsbury's is going to meaningfully move its share of the grocery sector beyond the current level," he said.

"Argos' performance looks weak over the second quarter, albeit Sainsbury's attributes the minimal growth to tough comparative figures - sales in Q2 last year were boosted by shoppers snapping up cut-price goods as it tried to clear stock. Even still, this year's performance looks sluggish and doesn't bode well if Sainsbury's wants to attract further bid interest for the general merchandise brand and get a good price for it."

"Sainsbury's shares have enjoyed a good run since April, but the lacklustre market reaction to its half-year results would suggest investors might be starting to wonder if the supermarket has reached its peak."

Reporting by Frank Prenesti for Sharecast.com