Sainsbury s must beat dire expectations on Tuesday

 Sainsbury’s will update the market on its latest battles in the UK supermarket price war on Tuesday 17th March.

As in all wars, clear winners are few, and casualties can be severe.

For the so-called ‘Big 3’ supermarket chains, the high price paid was almost £3bn wiped off their market value by September 2014, according to The KPMG/Ipsos Retail Think Tank.

And we know the all-round rout among established supermarkets didn’t stop there.

There’s been no let-up in abysmal same-store quarterly sales from Morrisons, Tesco and Sainsbury’s since.

A big comeback by the ‘Big 3′s shares 

But despite that, something else has also been afoot.

Amid still dire, but not quite as dire as expected winter sales results, the market collectively seemed to decide that enough (share price punishment) was enough.

And, in the several weeks that followed, UK grocers went on to have some of their strongest share price rises for years.

It’s all relative of course, but the resilience of their share prices from roughly the third quarter of 2014 onwards, has been undeniable:

• Tesco shares have rallied 56% since 9th December
• Sainsbury is up a net 25% since 12th December (3.7% on Monday)
• Morrisons’ net uptrend has been the longest, albeit relatively shallow, with 37% added since 16th October

Sainsbury’s turning into this year’s Tesco

If you suspected from the foregoing that the market recently reserved its harshest treatment among supermarkets for Sainsbury’s, you’d be right.

I offered an in-depth view of possible reasons for this here.

But the market had a much bigger reason for alarm earlier in the month, when data from retail research firm Kantar World Panel showed Sainsbury’s sales fell again, this time by 0.5% in the 12 weeks to 1st March.

Sainsbury’s 12-week sales performance was 0.1 of a percentage point worse than Morrisons, but both were ‘bested’ by Tesco whose sales fell just 0.1%.

Well, Sainsbury’s gets another chance tomorrow to prove that short sellers who recently targeted it more than any FTSE 100 consumer stock, were wrong.

Unfortunately, judging by consensus, the market doesn’t seem convinced Sainsbury’s key sales and profits have bottomed yet.

• Consensus forecasts key like-for-like sales (excluding fuel) fell 2%-to-2.7% in Q4
• Sainsbury’s will probably break out gross sales tomorrow. In these, the market has a tiny bit more confidence: a 1% rise in half-year revenues is forecast
• Full-year revenues are called to rise 0.1% to £23.95bn
• But there won’t be much celebrating in Sainsbury’s HQ tomorrow if profit forecasts are correct:
• FY reported pre-tax profit was whacked 67% lower in the market’s view, to £325.7m 

If Sainsbury’s manages to avoid the shower the market expects it to report tomorrow, its shares are likely to resume their three-month uptrend after slacking by almost 9% over the last week, despite a remarkable rise overall since December.

Its stock could then be expected to extend the 3.7% gain it marked on Monday, past the pivot point recently laid down around 271p and possibly back above its important-200-day moving average—currently at 274p.

J. Sainsbury Plc. shares recently pierced that barrier for the first time in around 18 months, the last ‘Big 3’ supermarket stock to do so.

Doing so again tomorrow would represent a gain of at least 3% on the day.

A potential short squeeze tomorrow could mean the day’s gains are even sharper.

But, if Sainsbury’s results tomorrow are indeed the shower the market expects, or even just slightly worse, I look for the stock go back under a confluence of boundaries formed by resistance-turned-support and its 100-day moving average.

That would be a circa 5% loss and perhaps more intraday.

Sainsbury’s may have the ‘coincidence’ of UK Budget Day being on Wednesday on its side.

From 11 AM on Wednesday 18th March, the UK market will be focusing on little else but UK Chancellor George Osborne’s annual economic address to Parliament.

Any sell-off from the day before would probably pause during these proceedings.

And it might continue less severely afterwards, when markets might remain distracted and any disappointment might have begun to fade.