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AJ Bell Youinvest Breaking the Mould – Sainsbury first-quarter results

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The main macroeconomic feature of the week will be the latest non-farm payrolls jobs data from America, which will be released on Thursday 2nd July That is a day earlier than normal owing to the Independence Day holiday weekend

This figure caused a massive stir in early June when the US Bureau for Labour Statistics (BLS) revealed that America had CREATED 25 million jobs in May, just one month after 205 million Americans lost their posts This meant that the US unemployment rate came down to 133% Why was that number so shocking? Three reasons

• First, economists had been looking for another 77 million job losses and a jump in the jobless rate to nearly 20% The addition of 25 million jobs suggested that the US economy was bouncing back from the COVID-19 outbreak much more strongly than anticipated, raising hope for a V-shaped recovery • Second, the original estimates for March and April were revised down by a further 642,000 so the historic numbers had been even worse than though • And finally, the BLS admitted it had made errors in compiling the data – and then not corrected them

This was because the BLS survey interviewers were told to classify workers on furlough or absent from work owing to COVID-19 for temporary reasons as unemployed – but it turns out that not everyone in that situation was, with some still registered as employed That caused a real stir, not least because of accusations that the BLS was understating the jobless rate by around three percentage points to make US economy look better than it really is In an era of alternative facts, you will have to form your own opinions there But whether you take the numbers at face value or not, one fact is undeniable – pretty much all of the jobs gains made by America following the Great Financial Crisis have been wiped out this year If the US does keep adding jobs and showing signs of greater resilience than expected, the US Federal Reserve could in theory starts to ease off on Quantitative Easing and reassess interest rate policy

How the markets would respond to that is hard to divine as share prices are currently riding the tide of Fed-provided liquidity so they might not like the idea of that cheap funding being taken away Equally, they might just latch on to the better economic momentum and keep going On the company front we are due to get a fairly select number of results statements or trading updates here in the UK, but the week should be no less informative for that Do again bear in mind that the Financial Conduct Authority is still giving firms extra time in which to prepare their figures, so these dates are still a bit provisional and subject to change • On Tuesday 30th June, we will get results from contractor Costain, online travel agent On The Beach and cybersecurity expert GB Group

• Then on 1st July, retailer Topps Tiles will update its shareholders • Then come Primark-owner Associated British Foods and packaging play DS Smith on 2nd July • Before pubs-to-hotel group Fuller, Smith and Turner and real estate agent Purplebricks round off the week on Friday 3rd July However, for me, the stock most capable of causing a real fuss in the week ahead is Sainsburys The grocer is due to release a first-quarter trading update on Wednesday 1st July This will be Simon Roberts’ first trading update as Sainsbury’s CEO after Mike Coupe’s retirement on 1 June after nearly six years in the job The shares are up a little over the past year and this may be because Sainsbury has done its bit to keep the nation fed and watered during the pandemic and lockdown

The grocery giant gave some indication of trading patterns in the new financial year, which began just before the imposition of the lockdown, alongside its full-year results on 30th April The company revealed that total sales excluding fuel had increased 8% year-on-year in the seven weeks to the 25th of April Grocery sales were up 12% and general merchandise sales through Argos were up 9% On the downside, general merchandise sales in Sainsbury supermarkets were down 22% and clothing sales were down 53% Fuel sales were down 52%

Sainsbury gave little by way of guidance for fiscal 2020-21 alongside April’s full-year results (when the final dividend was cancelled, to take the annual total to 33p, down from 11p the year before), other than to say its core assumptions were: o High single-digit percentage grocery sales throughout lockdown, with low single-digit percentages sales growth from late April onwards thanks to more meals being taken at home and normal conditions in the second half o Low-teens percentage drops at Argos thanks to lockdown and store closures and then subdued consumer spending thereafter o Significant double-digit percentage drops for general merchandise at Sainsbury stores in lockdown and the first half, ameliorating to mid-single digit declines thereafter o Significant sales declines in clothing, albeit moderating to low double-digit declines in the second half o Significant declines in fuel sales before a return to normal in H2 Besides total sale growth, Sainsbury will also publish like-for-like sales growth numbers at group level In the fourth quarter, like-for-like sales grew again, at a rate of 13% year-on-year both including and excluding fuel Intriguingly, overall earnings estimates for Sainsbury’s financial year to March 2021 have sagged even during the pandemic, to reflect the material increases costs, notably staff and logistics, increased discounting to shift excess clothing stock and also delays to ongoing productivity programmes

The company has not taken up Government support in the form of the furlough schemes or delayed VAT payments, although Sainsbury has accepted £450 million in business rates relief for the year Consensus is currently looking for around £579 million in pre-tax income, down very marginally on an underlying basis from £586 million last year I hope that you and your families are all in good health and good spirits during these difficult times Thank you for listening and I look forward to talking to you again next week

Source: Youtube

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