Hedge fund short sellers dented by Sainsbury’s rebound, as UK supermarket giant sees sales surge

Sainsbury's

Hedge funds betting against Sainsbury’s have taken a dent after the UK supermarket giant’s share price rose this week on the back of strong Q1 sales numbers, prompting the FTSE 100-listed firm to revise its profit outlook upwards.

A number of well-known hedge funds – including BlackRock, Marshall Wace and Citadel – have built negative wagers against Sainsbury’s lately, while the likes of Pelham Capital and Third Point continue to hold longer-standing bearish bets, according to regulatory disclosures made to the FCA.

The UK’s second biggest supermarket chain – which is one of the ‘Big Four’ grocers alongside Tesco, Asda, and Morrisons – has been a popular short among hedge funds over the past 18 months.

Panic-buying during the initial coronavirus outbreak saw its value slide to around 179p in March 2020, and the company continued to lag competitors last summer amid warnings of increased costs, with several high-profile hedge funds - including AHL and GLG Partners, Man Group’s systematic and discretionary hedge fund units – registering short positions.

But this week Sainsbury’s share price climbed to 282.70p, a two-year high, up from 252.30p a month ago, after its Q1 trading statement showed better-than-expected sales. Takeover talk across the UK supermarket sector has also reportedly bolstered its value.

The rebound has seen like-for-like sales, excluding fuel, rise 1.6 per cent during the three-month period, and the company also recorded a two-year growth of more than 10 per cent, with groceries, clothing and general merchandise sales all up. The company has now revised pre-tax profits expectations to no less than GBP660 million, up from a previous forecast of GBP620 million.

However, the retailer also sounded warnings over truck driver shortages, staff absences, and fuel and freight costs as a result of Covid-19, which could potentially impact the availability of certain products on shelves.