Shares in grocer J Sainsbury have failed to emulate smaller peer Morrisons, the former opening a mere 1.8% higher this morning, compared to the latter’s 5% jump yesterday. The more muted response to its Xmas trading statement (15 weeks to Jan 6) can be pinned on a host of reasons that require digging into the results.

1. Only a small beat for like-for-like Xmas sales ex-fuel (1.1% vs 1.0% est.) compared to Morrisons yesterday.
2. Only a small increase to full year guidance, all stemming from Argos synergies, nothing to do with groceries which accounts for a greater proportion of sales and profits.
3. Groceries grew strongly, but echoing retail peers real growth is online (20% of the quarter’s sales) highlighting the woes of the bricks and mortar retail.
4. Argos had a strong Black Friday, but little mention of how it fared at Xmas; Non-food growth lighter than forecasts5.
5. General Merchandise sales -1.4%, only marginally less weak than Q2 (-1.6%), although this was against a strong comparable (+3.7%)
6. Clothing sales slowed markedly (up just 1% vs +6% in Q2, +9% in Q3 last year)
7. It is still highlighting “challenging markets”, with a still squeezed consumer as wages fail to keep pace with inflation
8. The shares had already rallied 3% yesterday in response to Morrison’s results
9. Q3 results aren’t good enough to engineer a short squeeze, even though 10.9% of shares on loan (#8 most shorted), much like Morrisons lack of guidance upgrade yesterday (even though sales easily beat) wasn’t enough to replicate the squeeze we saw on Next shares last week when the fashion retailer beat estimates and upped guidance.
10. Like Tesco (results tomorrow) it is also still suffering from market share grabbing German discounters who posted 17% sales growth at Xmas versus incumbents up 2-3%.

For now the shares are holding yesterday’s bullish break above 6-month falling highs resistance and the 200-day moving average. A 12% bounce from November’s lows is strong, but less than that of peers (TSCO +17.5%, MRW +14.5%). Morrisons got markets excited about sector prospects. Sainsbury’s has been unable to add sufficient fuel to the fire of newfound bullish sector sentiment. Next up Tesco (and MKS) tomorrow to either refuel or refute.

Mike van Dulken, Head of Research, 10 Jan