The latest trading statement from J Sainsbury(LSE: SBRY) on Thursday has vindicated my long-standing bearish take on the supermarket struggler.
Sainsbury's announced that like-for-like sales (excluding fuel) fell 0.5% during the nine weeks to March 11, underlining the company's battle to stop shoppers flocking to its rivals.
Britain's second-largest chain saw corresponding underlying revenues rise 0.1% during the prior three months, in what now appears to have been a mere pause in the firm's downward sales spiral -- revenues fell 1% during the first six months of fiscal 2017.
While chief executive Mike Coupe commented that "we are pleased with this performance and are making good progress against our key priorities," he added that "the market remains very competitive and the impact of cost price pressures remains uncertain."
While sales of its traditional items continue to splutter, Sainsbury's recent acquisition of catalogue colossus Argos has helped take some of the sting out of quarter four's poor result.
Like-for-like revenues at Argos soared 4.3% during the period, Sainsbury's observed, a result that drove combined underlying sales across the group 0.3% higher.
Commenting on Argos specifically, Coupe noted that "online participation is growing, driven by mobile and Fast Track delivery and customers are responding well to new ranges," and added that "we are investing in digital to deliver excellent service and availability, with enhancements to the Argos website and app."
But the plucky performance of Argos is not enough to encourage me to invest in Sainsbury's, as the struggle at its core operations is only getting worse, with inflationary pressure and signs of stuttering wage growth still pushing customers into the arms of discounters Lidl and Aldi.
Latest Kantar Worldpanel numbers showed sales at these chains shoot 13% and 12.9% higher, respectively, during the 12 weeks to February 26th. This compares starkly with the meagre 0.3% till-roll rise over at Sainsbury's, and suggests that the chain will have to keep price cutting to stop sales collapsing.
Meanwhile, profit margins at Sainsbury's are likely to face a double whammy as the ongoing Brexit saga weighs on sterling.
Not cheap enough
Investors have recently shrugged off these fears and the share price of Sainsbury's recently touched levels not seen since last May. Consequently Sainsbury's now finds itself dealing on a prospective P/E ratio of 13.2 times.
Whilst below the FTSE 100 forward average of 15 times, I would consider a figure closer to the bargain watermark of 10 times to be a fairer reflection of the chain's high risk profile.
City analysts certainly don't expect earnings at Sainsbury's to snap higher any time soon, and predict that the grocer will follow a 16% slump in the year to March 2017 with a further 4% drop in 2018.
It that happens it would represent the fourth annual fall, and it is not difficult to see these woes extending much further into the future, as the fragmentation of the supermarket sector intensifies. I reckon today's results should encourage stock pickers to keep giving Sainsbury's an extremely wide berth.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.