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Sainsbury’s leans on Argos as supermarket sales slip

A strong performance by Argos failed to mask a slide in sales at Sainsbury's in the last quarter of its year, as the UK's second biggest grocer warned that rising food prices would pile more pressure on the sector.

Business Matters
By Business Matters
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The catalogue retailer, bought by Sainsbury’s last year for £1.4bn, outperformed its rivals in the market “by a couple of percent” in the nine weeks to March 11, according to chief executive Mike Coupe, the Telegraph reports.

Like-for-like sales at Argos – a key industry measure that strips out stores open for less than a year – grew 4.3 per cent during the period, against total sales up 3.8 per cent. Mr Coupe said that Argos’s offer “is sharp, and that’s been reflected in its performance”.

By contrast the supermarket side of the business reported a decline in like-for-like sales of 0.5 per cent, which it blamed on the late timing of Easter and Mother’s Day. Total sales at the supermarket were broadly flat, up just 0.1 per cent.

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The performance at Argos meant that like-for-likes across the group rose 0.3 per cent in the fourth quarter.

The disappointing result – worse than the 0.3 per cent sales growth estimated by Kantar Worldpanel in the 12 weeks to February 26 – sent Sainsbury’s shares down 2 per cent at the open, although they later recovered to trade 0.9 per cent down.

Retailers have been warning of price rises at the till as inflation starts to take off. Recent industry data suggested that food price inflation doubled to 1.4 per cent in the 12 weeks to the end of February, helping lift sales at the major grocers but putting pressure on shoppers’ wallets.

Mr Coupe said the grocery market was “very competitive” and facing the “uncertain” impact of inflation, but insisted Sainsbury’s was doing everything it could to keep a lid on price rises by working with suppliers and looking hard at its sourcing. “We’ve been mitigating price pressures to minimise the impact on consumers,” he said.

Sales of general, or non-food, merchandise, slipped 4 per cent during the period, but sales at its convenience stores and online remained strong, with both divisions rising by 7 per cent.

Analysts at HSBC described the update as “concerning”, adding: “The core business is suffering from falling sales, rising costs and margins under pressure.”

Stripping out the late timing of Easter, sales would still have been flat, and lower in volume terms, they added.

Nonetheless Kevin O’Byrne, chief financial officer, said Sainsbury’s was “very happy” with market consensus that its pre-tax profits for the year would be in the region of £578m. Sainsbury’s will announce its preliminary results for the year to March 11 on May 3.

Mr Coupe added that Sainsbury’s had not yet been approached by the Competition and Markets Authority for its thoughts on Tesco’s shock acquisition of wholesaler Booker, announced in January.

Sainsbury’s has been regarded as the more steady performer of the three major listed UK supermarkets. By contrast, Tesco and Morrisons have undergone changes of management and sweeping turnaround programmes in recent years in a bid to arrest falling profits and declining market share.

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