Sainsburys(LSE: SBRY) is charging higher this morning after the company issued a surprisingly upbeat trading statement and outlook.
Shares in the retailer have gained more than 13% at time of writing, taking them to the top of the FTSE 100 leaderboard, after the group said that it now expectsunderlying profit before tax to be moderately ahead of published consensus of 548m.
Whats more, the retailer reported that the rate of decline inits same-store sales improved in the second quarter. Excluding fuel,same-store sales fell 1.1% in the second quarter, marginally better than the 1.3% decline expected by analysts.During the first quarter, Sainsburys sales declined by 2.1%.
According to market research firm Kantar Worldpanel, Sainsburys robust performance improved towards the end of itsfinancial second quarter. Kantar estimates that Sainsburys sales rose 0.9%in the 12 weeks to September 13.
Commenting on the improved trading results, CEO Mike Coupe said:
During the quarter we saw an improvement in our key trading metricsWhilst the market is clearly still challenging, with food deflation impacting many categories, we are making good progress on delivering our strategyYear-to-date we have traded well, with both sales and cost savings ahead of expectations. Should current market trends continue, we expect our full year underlying profit before tax to be moderately ahead of our published consensus.
Strong performance all round
During Sainsburys second quarter, the group experienced strong growth across all of its product lines. According to Mike Coupe, in the quarter both volume and transactions grew as the decline in average basket spend continued to stabilise. Online grocery sales increased 15% during the quarter; clothing sales expanded 13%, and Sainsburys Banksaw its best ever month for travel money in July, with a 35%year-on-year increase in transaction volumes.
And if these trends continue, as noted above, Sainsburys management expectsfull-year underlying profit before tax to be moderately ahead of City expectations.
Staging a recovery
Overall, Sainsburys second quarter update shows that the company is starting tofight backagainst therelentless market-share grab of the discounters, Aldi and Lidl.
Aldi and Lidl are continuing to enjoy double digits sales growth, which has dampened City expectations for thebig four UK retailers,Tesco, Asda, Sainsburys andMorrisons. Still, Sainsburys surprise announcement that it now expects full-year underlying profit before tax to be moderately ahead of Cityexpectationsshows that investors shouldnt turn their backs on the big four just yet.
This is great news for income investors whoboughtSainsburys for the companys 5.8% dividend yield.
Indeed, there had been some concerns in the City that Sainsburys would cut its dividend payout again this year, as profits continued to fall. The companycut its final dividend to 8.2p a share, from 12.3p at the beginning of May, a decline of 24%.
However, based on current City forecasts the dividend payout is currently covered twice by earnings per share. With profits stabilising, it looks as if the companys dividend isnt going to be cut again any time soon.
Sainsburys currently trades at a lowly forward P/E of 10.9, even after todays gains.
Dividend surge
If history’s anything to go by, George Osborne’s overhaul of the way UK dividends are taxed will inspire a surge of special dividend announcements over the next six months.
If you want to profit from this dividend bonanza, our top analysts have puttogetherthisFREEdividend report, which is designed to help you discover and assess the market’s best income stocks.
The report is essential reading for the serious income investor and highlightsthe five key rulesdividend seekers need to follow in order tocreate a sustainable income stream from dividends.
Justclick hereto download thefreereport today!
Rupert Hargreaves 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.