Morning Note: Market news and an update from J Sainsbury.
Market News
US equities were little changed last night – S&P 500 (-0.2%); Nasdaq (+0.1%) – while this morning in Asia, markets were generally lower: Hang Seng (-0.6%); Shanghai Composite (-0.5%). Japan bucked the trend (Nikkei 225, +2.0%) and climbed to fresh three-decade highs. Japanese workers wage growth slowed sharply in November, adding pressure to the Bank of Japan. The FTSE 100 is currently trading 0.2% lower at 7,671.
The 10-year Treasury currently yields 4.02%. Governments from the US, UK, and the eurozone will start flooding the market with debt at a near unprecedented clip in coming weeks. The countries, along with Japan, will sell a net $2.1tn of new bonds to finance 2024 spending plans, a 7% increase from last year, according to Bloomberg Intelligence.
Oil trades at $78 a barrel, while gold is $2,029 an ounce. Sterling currently buys $1.2706 and €1.1617.
Global chip sales rose for the first time in more than a year, in the latest indication of demand starting to rebound. The Semiconductor Industry Association said worldwide revenue of $48bn in November was a 5.3% increase from a year earlier.
Source: Bloomberg
Company News
J Sainsbury has today released an update covering the 16 weeks to 6 January which highlights continued volume growth and lower inflation. The group has reiterated its full-year profit guidance, but in response the shares have been marked down by 4% in early trading.
During the period, total sales (excluding fuel) grew by 6.5%. Lower fuel prices (-7.2%) diluted total sales (including fuel), which only grew by 4.4%. Like-for-like sales (ex-fuel) – the key industry measure – grew by 7.4%.
Grocery sales grew by 9.3%, with stronger volume growth offsetting lower inflation. The group has expanded its Aldi Price Match Campaign, including more than 550 essential everyday products. The company outperformed the premium food market, with Taste the Difference sales up 13% in the quarter. Overall, the company has outperformed the market every week of this financial year and delivered volume growth ahead of the market for a fourth consecutive Christmas. Nectar participation reached 90% on an £80 weekly shop during the quarter.
General Merchandise sales fell by 0.6%. Within the unit, while Argos outperformed a weak and highly promotional general merchandise market, sales declined by 0.9% in the period and by 4.2% over the Christmas period against an exceptionally strong performance last year. Sainsbury’s General Merchandise sales grew by 0.9%. Clothing sales fell by 1.7% as Tu regained some momentum in a market that remains highly promotional, partially reflecting unseasonably warm weather.
The group plans to kick off the new financial year with an industry leading pay increase, investing a record £200m to continue to pay the Real Living Wage across the country.
Financial Services performance continues to be impacted by net interest margin compression, as the group is not fully passing on higher funding costs on bank deposits to customers.
For the financial year to end February 2024, the group continues to expect underlying profit before tax of between £670m and £700m with a strong Grocery performance offsetting weaker General Merchandise and Financial Services contributions. The group also continues to expect to generate retail free cash flow of at least £600m. The business enters 2024 with strong momentum and plans to outline its updated strategy on 7 February.
Overall, with the majority of sales coming from non-discretionary items, such as food, profitability should hold up better in an economic downturn than retailers exposed to discretionary spending.
Source: Bloomberg