Markets rise, Sainsbury’s mixed fortunes and Dunelm is still riding high

“Volatility is down, equities are up. Investors look to be regaining their confidence after a choppy start to 2022 with all the main indices across Europe and Asia pushing ahead, following a similar performance on Wall Street last night,” says Russ Mould, Investment Director at AJ Bell.

“Driving confidence were remarks by Federal Reserve chairman Jay Powell that the central bank would do everything it could to stop inflation running out of control.

“The FTSE 100 traded 0.6% higher, with miners dominating the index’s top performers. The top six risers were all metal producers, and this sector is a bellwether for global economic activity.

“Risk appetite appears to have returned given how more stodgy companies like BT, Reckitt Benckiser and Imperial Brands were among the fallers on the FTSE. Instead, investors were more interested in bidding up some of the tech plays which have been beaten up recently, including Scottish Mortgage.

“Also in vogue were a slew of consumer-facing companies riding high after upbeat trading statements. These included Sainsbury’s which upgraded its profit guidance, and Whitbread which said it continued to trade ahead of the market.”

Sainsbury's

“Sainsbury’s is now a year into its ‘food first’ strategy and the shift in focus is evident in its latest trading update where grocery sales are good and general merchandise is left behind.

“The company blames tough year-on-year comparatives for weaker non-food sales yet given that quite a few other retailers have reported a decent Christmas, one wonders if Sainsbury’s-owned Argos has made a few mistakes and more attention is needed to the brand.

“Supply chain issues are one factor behind a double-digit decline in technology, gaming and toy products. Another factor is the decision to focus on profitable sales and cut back on promotions. That might protect profit margins but equally Argos has a reputation for having attractive prices so Sainsbury’s is taking a bit gamble with its new strategy as it could see the loss of customers to rival operators.

“If people now associate Argos as being less competitive on pricing, they might cease shopping with the brand full stop. Against these concerns, the core food business is doing well.

“For years Sainsbury’s has been stuck in the middle. Its products have more expensive than Aldi, Lidl, Tesco and Asda and so the value shopper hasn’t seen Sainsbury’s as a desirable place to buy food and drink. Equally, people seeking a higher quality product have preferred to go to Waitrose or Marks & Spencer.

“The new strategy is to become more competitive on pricing is now winning over some of the value-seeking shoppers, while a big focus on product innovation has seen it roll out some higher quality items which look to have been a hit with people looking for something fancy to put in their basket.

“Sainsbury’s needs to sustain momentum with this trend, which will not be an easy job given how all the other supermarkets are constantly tinkering with their formula to try and stay one step ahead of the competition.”

Dunelm

“Homeware seller Dunelm has smashed it out of the park yet again. Impressively and despite Omicron the company enjoyed a Christmas sales boom and posted a record quarterly showing.

“The pandemic has arguably been favourable to the business in some respects; we’re spending more time indoors and are therefore more likely to want to upgrade our furniture, bedding or curtains.

“A key plank of the transformation of Dunelm under chief executive Nick Wilkinson has been an improvement and expansion in online sales. That has really helped during periods when footfall in its stores has either been reduced or wiped out entirely thanks to restrictions or people’s reluctance to go out.

“The fact that Dunelm was able to boost profitability in the period despite cost pressures is testament to the quality of its product range and how it is resonating with consumers. It has also ensured good product availability by maintaining a high level of inventory.

“A key basic element of retailing is getting the right products in front of customers at the right time and Dunelm is ticking this box for now.

“And despite specialising in soft furnishings, Dunelm is not allowing itself to get too comfortable, continuing to invest in its digital capabilities.”

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