- FY26 retail profit guidance below consensus
- Investors cheer buyback and special dividend
- Reaction in sharp contrast to Tesco last week
Investors in the UK’s second-largest supermarket group Sainsbury’s (SBRY) were treated to a triptych of good news with better-than-expected full-year results, a new £200 million buyback and a special dividend.
This seemed to overshadow the news retail profit for this year would be below forecasts as Sainsbury’s follows arch-rival Tesco’s (TSCO) lead in investing more in prices to woo customers.
The shares gained 9p or 3.5% to 257p, in stark contrast to Tesco shares which dropped 6% on the day it released results (10 April).
RAMPING UP SPENDING
For the year to 1 March, Sainsbury’s reported sales excluding fuel of £26.6 billion, up 4.2% on the previous year, despite a 2.7% drop in sales at Argos.
Retail underlying profit was £1.036 billion, fractionally ahead of the company-compiled consensus of £1.032 billion, while EPS (earnings per share) of 23.1p and DPS (dividends per share) of 13.6p were also marginally ahead of forecasts.
Chief executive Simon Roberts said the firm had invested £1 billion in lowering prices over the past four years, and ‘more people are choosing Sainsbury’s for their main grocery shop as a result, delivering our highest market share gains in more than a decade’.
Roberts continued: ‘Our customer offer is the strongest it has ever been. We've expanded Aldi Price Match to more products than ever before in addition to offers on more than 9,000 products with Nectar Prices. Customer satisfaction with product availability is at record levels and we’re continuing to add more new, innovative products to our ranges.’
Buoyed by its improved market share, the firm has decided to go on the offensive with its largest store expansion programme in more than a decade, increasing space in its existing stores and opening new sites.
In addition, to sustain its market position, the company will invest more in pricing meaning underlying operating profit for the year to 1 March 2026 will be ‘around £1 billion’ compared with the consensus of £1.08 billion, while retail free cash flow will be ‘more than £500 million’ against last year’s £531 million.
INCREASING SHAREHOLDER RETURNS
Despite this cautious guidance, investors chased the shares higher on the promise of a buyback programme of at least £200 million this year and a special dividend of around £250 million in the second half of the year funded by the disposal of the banking business.
The company also pledged to return any disposal proceeds in excess of £250 million through an increase in the buyback, and to carry out a share consolidation alongside the special dividend.
