The grocery market is getting tougher, but the stock market may be getting more obliging. How else to explain the 4 per cent leap in J Sainsbury's (SBRY) share price triggered by news of a 2.1 per cent fall in like-for-like sales in the first quarter?
The result was worse than last year's 1.9 per cent dip, but marginally better than the consensus forecast for a 2.2 per cent decline. The market cheer may have been exaggerated by a squeeze on short-sellers. Alongside Wm Morrisons (MRW) and Greene King (GNK), Sainsbury's tops the list of most shorted stocks on the London market, with 11 asset managers disclosing net short positions exceeding 0.5 per cent to the Financial Conduct Authority. With the shares down 21 per cent over the past year, some investors may be tempted to close out their positions.
Chief executive Mike Coupe, who is barely 11 months into his tenure, pinned the blame for the ongoing declines squarely on food price deflation - including the effect of Sainsbury's own price cuts. In a strategic review last November Mr Coupe unveiled a raft of measures to revive the grocer's competitive position, including lower prices, store concessions to Argos - three of which were opened during the first quarter - and an acceleration of the shift away from supermarkets towards convenience stores.
Sainsbury's trading update followed an analysis by the Office for National Statistics (ONS) revealing supermarket price deflation to be considerably stronger than that suggested by the consumer prices index (CPI). The British statistical agency took it upon itself to compare its official inflation measure with an experimental version based on close to 1.5m prices advertised on supermarket websites. The latter showed prices falling much faster, with an average decline of 6.7 per cent in the nine months to April, compared with 2.5 per cent for the 35 food and drink items in the CPI basket.
