Short sellers are ramping up bets against J Sainsbury plc (LSE: SBRY), the UK’s second-largest supermarket chain, amid fears of squeezed earnings and lagging share performance compared to peers like Tesco.
Public disclosures from the Financial Conduct Authority (FCA) show an aggregated short interest of about 6.87% in Sainsbury’s shares, making it one of Britain’s most shorted stocks.
Key funds involved include Ilex Capital Partners with 2.59% as of August 20, AKO Capital at 1.59% (July 29), BlackRock Investment Management at 1.05% (January 14), Marshall Wace at 0.92% (July 14), and GLG Partners at 0.72% (August 7), according to data from Short Tracker.
The bearish sentiment stems from intense supermarket price wars that could erode profit margins. Sainsbury’s has guided for flat underlying retail profits of around £1 billion for the fiscal year ending March 2026, leaving little buffer if rivals like Tesco and Asda ramp up discounting. “Profit margins could weaken, leading to analysts downgrading earnings forecasts and share prices falling further,” noted a recent analysis on ADVFN.
The company has pledged to keep prices low for shoppers, which benefits consumers but limits profit growth – a scenario short sellers favor. This outlook aligns with Sainsbury’s April 2025 warning that profits are unlikely to rise due to expected price competition and rising costs, as reported by The Guardian.
Adding to the pressure is weakness in non-food divisions, particularly Argos, general merchandise, and clothing. Recent updates highlight soft demand here compared to resilient food sales.
Argos sales fell 2.7% in the year to March 2025, dragging group performance amid a tough consumer environment, per Sainsbury’s earnings transcript on Seeking Alpha. Hedge funds are betting this slump in toys, furniture, and electronics will continue, as noted in Hedgeweek. A November 2024 report from BM Magazine showed Argos down 5%, underscoring the drag on overall results.
Rising fixed costs pose another risk, especially from a planned business rates hike. UK government reforms set to hit properties valued over £500,000 could make about 50 of Sainsbury’s 600 larger stores unprofitable, potentially hurting cash flow.
This was highlighted in an August 14, 2025, article by The Grocer, which warned over 100 big supermarkets across chains are at risk. Sainsbury’s and peers like Tesco may weather it better than smaller rivals, but shorts see it as a blow to store profitability.
Broader sector headwinds, including new taxes and higher operating costs, compound the issues. UK retailers face a £7 billion cost increase in 2025 from hikes in employers’ national insurance and other levies, prompting warnings of price rises or cuts elsewhere.
Despite these pressures, Sainsbury’s shares have risen 11% this year to 306p, outperforming some expectations. Grocery sales grew 5% in Q1 2025, per Investing.com, and the company maintains its £1 billion profit guidance. However, with hedge funds like those tracked on The Motley Fool piling in, the stock could face volatility if margins slip further.
