Sainsbury’s shutters Argos stores, and Trainline picks up speed as it narrows losses

“After all the excitement of the US election and news of billions of pounds in fresh stimulus from the Bank of England there were few fireworks on the markets on Bonfire Night as the FTSE 100 ticked 0.2% higher to 5,895.88,” says AJ Bell Investment Director Russ Mould.

“While uncertainty over the outcome of the US Presidential election remains, it appears challenger Joe Biden is in pole position having secured key swing state Michigan.

“Legal challenges from incumbent Donald Trump might delay the ultimate result but it appears we are inching towards a situation investors can live with.

“Likely Republican control of the Senate should put paid to increased corporate regulation and taxation while a new administration in the White House may well dial down tensions with other global superpowers on issues like trade.

“This certainly seemed to be the thinking in Asia overnight as Japanese and Chinese equities staged substantial rallies.

“Oil prices remain volatile though and gold is still above $1,900 suggesting there is still some nervousness over the febrile nature of the political situation across the Atlantic.”

Sainsbury’s

“Sainsbury’s Plan A to revitalise growth was to try and merge with Asda and that didn’t work. Plan B was to close supermarkets, stop selling mortgages and reduce costs and debt. Led by new chief executive Simon Roberts, plan C is an amalgamation of plan B with a primary focus on food, as well as being clever with how its non-food brands operate.

“It’s great to see Roberts have a clear idea of where to take the business. Unfortunately, it’s going to take more than words to convince the market that Sainsbury’s can bounce back and fight off fierce competition.

“It feels like large swathes of the retail sector have been in transformation mode for years and recovery strategies keep changing, particularly in the case of Sainsbury’s and Marks & Spencer. The market really wants to see some results before the ship is steered in a different direction once again.

“Arguably Sainsbury’s focus on food should have been the strategy all along and it goes to show how the business previously lost its way and forgot its roots as a grocer.

“There will be a hit to earnings in the short term, but Sainsbury’s is confident it is setting itself up to be stronger longer term. On paper, lower food prices, more online services, more convenience stores, and the closure of meat, fish and deli counters to save money and reduce waste seem like sensible steps to make.

“The stance that non-food brands must be strong enough to perform well on their own is also wise.

Argos has been an important part of the business in recent years and the decision to close hundreds of stores looks like a no-brainer.

“Sainsbury’s says 90% of Argos sales are now generated online. During the first lockdown, sales went up despite standalone Argos stores being closed and the gradual reopening of these sites barely made a difference to the brand’s revenue growth rates. Effectively it shows that Sainsbury’s doesn’t really need all these standalone stores.

“Shrinking the estate to around 100 standalone sites and relying on concessions and collection points inside Sainsbury’s stores looks like a good move. So too is opening 32 local fulfilment centres as this will give Sainsbury’s greater ability to service homes and stores with Argos products very quickly and means stores don’t have to hold as much stock.”

Trainline

“The Trainline share price picked up pace like a freight train in the aftermath of its latest results reflecting relief that the company had begun to stem the losses resulting from covid-19.

“The rail journey booking site had barely got out of the station as a public company before the pandemic hit and the resulting travel restrictions have dealt a devastating blow to the business – more recently it revealed it would lose the person at the controls as Clare Gilmartin announced her decision to step down in February 2021 for family reasons.

“So news that the company had managed to narrow losses in the first half of its financial year, compared with the previous six-month period, helped steady an equity story which had been in danger of being entirely derailed.

“This narrowing of losses was achieved by taking significant costs out of the business – including marketing spend.

“The company is not out of the woods yet, warning of a risk of a covenant breach alongside these numbers and with renewed lockdown conditions likely to put passenger numbers under yet more pressure.

“Assuming the company makes it through the coronavirus tunnel it could benefit from renewed growth in rail and further migration of ticket sales online – though the incentive for paying in advance for shorter, less expensive journeys may be a tough sell.

“Also, familiar question marks over the company’s barriers to entry may re-emerge. Can a few useful online tools and features really make it stand out if National Rail Enquiries or other third parties start to encroach more on its territory?”

These articles are for information purposes only and are not a personal recommendation or advice.