Sainsbury’s: Supermarket Chain Is Homing In on Grocery As It Plans to Sell Argos

Key Morningstar Metrics for J Sainsbury

• Fair Value Estimate
  : GBX 341
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Medium

Sainsbury’s has agreed to sell Argos, its general merchandise business, to Swift Partners. The deal is expected to close in February 2027, with full separation expected by 2029. Swift Partners is a newly formed company, established for the Argos transaction.

Why it matters: We view the sale positively; UK general merchandise retailers have lost share over the past decade to online retailers, including Amazon.com, and we expect this trend to continue. In Sainsbury’s first-quarter trading update, Argos sales declined 0.5%, and its general merchandise and clothing segment declined 3.7%.

• The sale is expected to be neutral to underlying profit and EPS accretive. Cash proceeds from the sale are expected to be £120 million.
• We continue to expect Sainsbury’s to reach its full-year targets of underlying operating profit of between £975 million and £1,075 million and free cash flow of more than £500 million. However, we remain cautious of the impact of the Middle East conflict on consumer spending.

The bottom line: We maintain our GBX 341 per share fair value estimate for no-moat Sainsbury’s. At current levels, shares appear fairly valued. While the near-term environment remains uncertain, we think effects from the Middle East conflict will be temporary.

• We think Sainsbury’s will benefit from a greater focus on grocery; however, the fiercely competitive nature of the UK grocery industry makes it challenging to carve out a competitive edge.