Sainsbury’s dealmaking activity will be in focus next week as it updates shareholders on recent trading. The supermarket giant is likely to face questions from analysts and journalists about reports that it considered a merger deal with rival Morrisons, while it also agreed the sale of its Argos arm.
Half-year update and market position
The UK’s second-largest supermarket group will shed light on its latest performance and strategy in a half-year update on Thursday October 22. Sainsbury’s has reported resilient trading in recent years despite uncertainty in the wider economy, focusing on price investments and customer loyalty to maintain growth in a competitive grocery market.
It has continued to steadily build its share of the market, holding a roughly 15.3% share of the UK’s sector, according to the most recent data from Worldpanel. But the retailer remains significantly behind largest rival Tesco, which has a 27.9% share.
Past merger attempts and fresh speculation
In 2019, Sainsbury’s sought to merge with third-largest player Asda in an effort to take on Tesco but saw the £7 billion deal blocked by competition regulators. There has been significant speculation in the following years that Sainsbury’s could look to a takeover or merger deal again to accelerate its growth and take a more dominant position in the market.
Earlier this month, the Financial Times reported that Sainsbury’s held talks with private equity-backed rival Morrisons – currently the sixth-largest grocer – earlier this year in a fresh attempt at consolidation. It said the firms are no longer in talks over such a move, but the reports ignited fresh speculation that Sainsbury’s could look for a takeover deal as part of its growth ambitions.
Argos sale and growth expectations
Investors will be keen to find out more about the retailer’s long-term growth strategy in its update next week. In July, Sainsbury’s agreed to sell its Argos general merchandise business for at least £120 million to Swift Partners – a new company set up by retail experts including former Co-operative Group boss Richard Pennycook – around 10 years after buying the brand for £1.4 billion.
Analysts reacted positively to the group’s move to focus further on its core Sainsbury’s business. The retailer is expected to unveil further growth next week, albeit with sales growth likely to slow on the back of weaker food inflation and “softer” volumes for part of the quarter.
Experts at Barclays predicted the group will report 2.6% sales growth for the second quarter of the financial year, compared with 3.6% in the first quarter. They also suggested that earnings before interest and tax are likely to come in around £530 million for the half year, up 4% year-on-year.
Investors will be keen for guidance on how the group’s profit outlook could be impacted by a predicted rise in inflation as the Middle East conflict continues to push energy costs higher.
