J Sainsbury Half-Year Results

Shares of J Sainsbury (LON:SBRY) fell over 1% on Thursday after reporting mixed half-year results and an unexpected operating profit miss.

The UK’s second-largest supermarket chain saw its retail operating profit for the first half of fiscal 2025 fall short of expectations by 2.5%, primarily attributed to the underperformance of its Argos division.

Despite the challenges, overall like-for-like group sales grew by 4.1% in the second quarter, outpacing consensus estimates. However, this growth was insufficient to alleviate concerns regarding operating efficiency and profitability.

Grocery Segment Performance

Sainsbury’s grocery segment displayed robust performance, achieving a 9% year-on-year increase in profit before central group costs, alongside a margin improvement of 20 basis points. Still, analysts from Morgan Stanley (NYSE:MS) noted that this growth pales in comparison to rival Tesco (OTC:TSCDY), which reported a 30-basis-point margin increase and a 10% profit boost in its latest earnings.

Argos and Retail Guidance

Sainsbury's non-grocery arm, Argos, faced ongoing operational challenges, particularly in the first quarter, which adversely affected the retailer's overall profit growth. Analysts emphasized that achieving the upper end of the company's full-year guidance of a retail underlying operating profit between £1.01 billion and £1.06 billion would require significant improvement in performance during the latter half of the year.

Morgan Stanley cautioned that skepticism persisted regarding the feasibility of achieving the top-end forecast, which calls for substantial progress across both retail and financial services segments in upcoming quarters.

Financial Services and Clothing Sales

On a brighter note, Sainsbury’s financial services division exceeded expectations, contributing positively to underlying profit before tax and aligning overall profit before tax with market forecasts, despite the retail division's weaker performance. Additionally, clothing sales outperformed expectations, rising by 8% year-on-year, marking a rare highlight driven by favorable comparisons to a weaker previous period.