(LON: SBRY) FY16 RESULTS: MISSES
EXPECTATIONS AS GROCERY PRICE WAR HITS PROFITS
FY16 FY15 YoY Change £23.51 £23.78 (1.1)% Gross Margin 6.2% 5.1% 111 bps Operating Expenses/Sales 3.6% 4.8% (115) bps Operating Margin 3.0% 0.3% 267 bps Diluted EPS (GBP) 22.5p (8.7)p N/A Revenues (GBP Bil.) FY16 ended March 12, 2016. FY15 ended March 14, 2015. Source: Company reports • The UK’s second-­‐biggest grocery retailer, J Sainsbury, reported that revenues were down by 1.1% and that comps were down by 0.9% for the year ended March 2016. • FY16 revenues came in at £23.51 billion versus the consensus estimate of £23.54 billion. • Stripping out the impact of write-­‐downs in FY15, underlying basic EPS fell by 8.3%. On a reported basis, diluted EPS climbed from (8.7) pence in FY15 to 22.5 pence in FY16, missing the consensus of 24.6 pence. FY16 RESULTS Year-­‐over-­‐year changes in J Sainsbury’s FY16 profit measures were impacted by its substantial, £628 million write-­‐down on its store pipeline in FY15. Stripping out this impairment charge, the company reported the following for FY16: • Operating margins declined by 31 basis points, from 3.3% in FY15 to 3.0% in FY16. • Basic EPS declined by 8.3%, from 26.4 pence in FY15 to 24.2 pence in FY16. Sector deflation and the pressure to invest in lower prices proved to be drags on the top line in FY16, with comps down 0.9%, excluding fuel. CEO Mike Coupe noted that J Sainsbury grew volumes and transaction numbers year over year. Price pressures, coupled with operating cost inflation, fed through to lower operating margins, net profit and EPS on an underlying basis. Revenues, net profit and EPS all marginally undershot the consensus estimates recorded by S&P Capital IQ. The nonfood category proved a bright spot, with clothing sales up 8.5% and general merchandise sales up 3.5%. The recently announced acquisition of Argos will add around £4.1 billion to J Sainsbury’s nongrocery sales. The acquisition is expected to be completed in 3Q16. GUIDANCE The company predicted that grocery sector deflation will persist into the second half of the year. Cost inflation is expected to be at the lower end of the 2%–3% range. Net new space is expected to be around 1%, reflecting a slowing of new property openings. Analysts expect J Sainsbury’s revenues to rise by 0.8% in FY17. The consensus is for net profit to fall by 8.2% and for diluted EPS to fall by 13.2%. DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & T ECHNOLOGY [email protected] US: 917.655.6790 H K: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. 1
Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 [email protected] John Mercer Senior Analyst HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 2470 NEW YORK: th
1359 Broadway, 9 Floor New York, NY 10018 Tel: 646 839 7017 LONDON: 242–246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 FBICGROUP.COM DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & T ECHNOLOGY [email protected] US: 917.655.6790 H K: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved. 2