Like-for-like sales in the third quarter were up 0.9 per cent, excluding fuel, driven in part by Sainsbury's successful multi-channel strategy and an increase in general merchandise sales. Included in this figure was a 0.5 per cent contribution from store extensions. Chief executive Justin King says he expects the challenging economic backdrop to persist into 2013, with customers looking to rebalance their household budgets by spending cautiously in the first few months.
The week before Christmas was Sainsbury's strongest trading week ever, with customer transactions of more than 27m - and £16m-worth of sales in one hour between 12pm and 1pm on 23 December. On Christmas eve, the supermarket generated more than £100m-worth of sales, making it the best Christmas eve in the company's history.
Strength in Sainsbury's own-brand products grew at three times the rate of branded goods and the food ordering service saw 25 per cent more orders. Perhaps, surprisingly, general merchandise and clothing sales continued to grow at a faster rate than food. Sales in convenience stores grew 17 per cent and online business rose 15 per cent, as the company added 496,000 sq ft of new space.
Despite the seemingly positive results, broker Seymour Pierce cut Sainsbury's 2013 pre-tax profit forecasts by 2.5 per cent to £730m, giving EPS of 28.6p. Analyst Kate Calvert said: "We suspect Sainsbury will struggle to outperform in 2013 as Tesco continues its fightback and there is some margin vulnerability as momentum slows."
Tesco (TSCO) had yet to post its trading update as the IC went to press, but it is expected to deliver roughly 1 per cent like-for-like growth.
In stark contrast, WM Morrison (MRW) had a terrible Christmas trading season. Like-for-like sales, excluding petrol, fell by 2.5 per cent in the six weeks to 30 December. Morrison is structurally disadvantaged against Tesco and Sainsbury because of its lack of online presence and the slow rollout of its convenience stores.
Sainsbury's results are not as stellar as management makes out, but it continues to take market share, and the success of its promotional strategy is clear - over Christmas, shoppers redeemed a record 22bn Nectar points, worth more than £110m. At 327p, and trading at 10 times earnings, it is still a buy. Morrison's woes persuade us to downgrade our recommendation to hold until it shows signs of bouncing back.