Sainsbury's profit goals on track after festive sales lift but Argos suffers blow

Supermarket major Sainsbury’s is on track to beat profit targets on the back of better-than-expected festive food and drink sales.

By Scott Reid
Wednesday, 12th January 2022, 8:46 am
Updated Wednesday, 12th January 2022, 8:46 am

The UK’s second-largest grocer, behind Tesco, said overall sales dropped in the latest quarter but highlighted that sales of grocery products grew over the key period around Christmas.

It told shareholders that strong recent grocery sales volumes and cost savings across the business have offset the impact of “higher operating cost inflation” and investment.

Total sales, excluding fuel, dropped by 5.3 per cent for the latest quarter to January 8 against the same period last year, but were 1.4 per cent ahead of pre-pandemic levels.

Shoppers queue outside a branch of Sainsbury's during the first lockdown in March 2020. Picture: Dan Mullan/Getty Images

Grocery trading dipped by 1.1 per cent against the same period a year earlier, but was 6.6 per cent higher than pre-pandemic levels.

Sainsbury’s was buoyed by grocery sales over the crucial festive period, which nudged up 0.1 per cent year-on-year over the six weeks to January 8.

Meanwhile, the retailer reported that sales in its general merchandise business, which includes Argos, dropped by 16 per cent over the quarter.

However, it said cost reductions at Argos, driven by the group's decision to shut 420 of the brand’s branches while taking others in store at Sainsbury’s, helped bolster profit margins.

The group now expected to post a pre-tax profit of at least £720 million for the year to March.

Chief executive Simon Roberts told investors: “I am really pleased with how we delivered for customers this Christmas.

“More people ate at home and our significant investment in value, innovation and service led to market share growth. At the same time, we are pleased to increase profit guidance for the full year.

“The backdrop was challenging and our teams worked hard throughout the year to make sure we had all of the products everyone wanted.”

The latest figures come in a busy week for retail trading updates with Tesco also poised to unveil numbers. Discount rivals Aldi and Lidl have already reported strong festive sales.

Zoe Gillespie, investment manager at wealth management firm Brewin Dolphin, said: “UK supermarkets faced tough comparisons against Christmas 2020, when lockdown caused a boom in food and drink sales, but the spread of the Omicron variant saw consumers stay away from bars and restaurants last year as well.

“Sainsbury’s is continuing to deliver strong results on the back of the range of measures it took to improve business performance.”

Richard Hunter, head of markets at investment platform Interactive Investor, noted: “While there are some clear reasons for cheer within the update, there are also some concerning developments within general merchandise in particular.

“Sainsbury’s has highlighted particular declines in technology, gaming and toy market sales with the well reported disruption to supply chain blockages playing its part.”

Walid Koudmani, market analyst at financial brokerage XTB, added: “The company continues to show encouraging results and while general merchandise and clothing sales were down year on year, grocery sales and an effective cost saving strategy have shown positive results and could be an encouraging sign for investors moving forward.”

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