LONDON -- It seems such a short time ago that the U.K.'s FTSE 100 supermarkets, Tesco (OTC: TSCDY), J Sainsbury (OTC: JSAIY), and Morrisons were considered safe investments for troubled times.
But then we had Tesco's well-publicized disappointment in its pre-Christmas trading, though the resulting fall in the share price was enough for ace investor Warren Buffett to top up his holdings. (You can read about the deal in the free Motley Fool report "The One UK Share Warren Buffett Loves.") Then came a first-quarter trading statement this week that showed a further fall in like-for-like sales, which disappointed the market.
Sainsbury versus Tesco
And today it was time for Sainsbury to release its quarterly figures -- and it outshined Tesco.
Like-for-like sales for the 12 weeks to June 9 rose by 1.4%, with total sales excluding fuel coming in 3.8% higher than the same period last year. That was apparently boosted by Jubilee spending, with an estimated 2 million extra visits made to stock up on party cakes and flags.
Tesco's quarter ended too soon to include the holiday shopping, so we do need to take that into account when comparing the two. But on the other side, apparently the poor April weather will have had a negative effect on Sainsbury's sales.
Why the fall?
Though the company described its performance as "good sales performance in a challenging market", the punters weren't overjoyed, and the share price is down 11 pence, or 3.8%, as I write. On the current price of 280 pence, that suggests a price-to-earnings ratio for the full year of just more than nine and a dividend yield of 6%, which makes the shares seem crazily cheap to me. So why are they falling?
Presumably, the fall is due to like-for-like sales coming in a little behind City guesswork, and that might cause a lowering of full-year forecasts. But it surely won't be by much, and although the dividend wasn't mentioned in today's release, it should be well-covered, and I don't see much likelihood of its not hitting expectations.
Ignore the noise
To me, analysts' machinations over day-to-day effects on shopping footfall and basis-point minutiae are nonsense, and they are trying to rate things to a far greater degree of precision than the real world actually permits. Still, it keeps them in a job, and long-term investors can ignore the noise and concentrate on the all-important long-term fundamentals.
And those fundamentals are saying to me that the supermarket sector is undervalued and should provide nice returns over the next decade; dividend yields of this level from supermarkets don't come along that often in a lifetime.
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