Supermarket group J Sainsbury plc (LON:SBRY) confounded the pessimists today and posted better than expected Christmas trading but only thanks to a solid contribution from last year’s acquisition of Argos-owner Home Retail Group.
Britain's second biggest supermarket reported like-for-like sales growth of 0.1%, excluding fuel, in the 15 weeks to January 7, better than consensus forecasts for a 0.8% decline, and an improvement on a fall of 1.1% in its fiscal second quarter.
Catalogue-based high street chain Argos saw its like-for-like sales increase by 4.0% over the period.
Sainsbury’s chief executive Mike Coupe said: “We had a record Christmas week, with over 30 million customer transactions at Sainsbury's and over £1 billion of sales across the Group.”
He added: "Our Groceries Online and Convenience channels performed well, achieving over nine and six per cent sales growth respectively and at Argos we saw record levels of online participation.”
The Sainsbury’s boss said online sales made up 18% of total group sales in its third quarter.
Coupe added: "Our Argos digital stores in Sainsbury's supermarkets are performing well, as awareness of the convenience of shopping at both Sainsbury's and Argos under one roof grows among our customers.”
He said clothing and general merchandise also had a very strong quarter, with clothing sales up 10% and general merchandise ahead 3%.
Richard Hunter, Head of Research at Wilson King Investment Management, said: “Whilst these Sainsbury numbers are not sufficient to shoot the lights out, they are comfortably ahead of expectations. In particular, the contribution from the online and convenience channels is strong, whilst the integration of Argos is already beginning to bear fruit.
“Meanwhile, Argos aside, non-food is also progressing, most notably in the form of the clothing line and Sainsbury’s Bank.
“The transformation of the business seems to be falling in place and investors are being paid to wait in the meantime, with a healthy dividend yield of 4.5% presenting attractions given the current interest rate backdrop.”
But the Sainsbury boss was still cautious on the outlook, saying: “The market remains very competitive and the impact of the devaluation of sterling remains uncertain.”
Sainsbury's shares topped the FTSE 100 leader board with a 5% jump in early trading, but fell back as the session progressed, ahead less than 3%, or 7.2p at 266.0p late afternoon.
Wider context ..
Neil Wilson, senior market analyst at ETX Capital, pointed out that Sainsbury’s shares “are now up above where they were before the EU referendum in June as UK consumers continue to spend big despite Brexit uncertainty. “
But, he added: “Sainsbury’s results are positive but have to be viewed in the wider context of the market, which seems to have enjoyed a bumper Christmas.”
Wilson said: “It increasingly looks like Sainsbury’s is losing market share, notably to Tesco, as the latter is enjoying a rebound.
“Sainsbury’s did very well when Tesco and others were struggling but is now facing its own challenges. And all the sector-wide problems like falling margins and the sterling squeeze from suppliers are there, too. “
The ETX analyst said the real positive comes from Argos, which confirmed just what an important strategic acquisition this was for the supermarket group.
He concluded: “We have to now view Sainsbury’s as a wider business post Argos acquisition and looking ahead we expect some not insignificant cost synergies (particularly around real estate) and growth as a result of store integration.”
And John Ibbotson, director of the retail consultancy Retail Vision, said: “Argos will be key to the long-term success of Sainsbury’s multi-channel strategy, so this is an encouraging start.”
He added: "Sainsbury's is playing a slightly longer game than some of its competitors but future-proofing itself in this way could pay dividends down the line.
“It is by no means out of the woods yet, but having a plan that’s different to its competitors and sticking to it can count for a lot in the current environment.”
The Sainsbury’s update comes a day after smaller rival William Morrison Supermarkets PLC (LON:MRW) raised its current year profit estimates after reporting its best Christmas performance in seven years.
Britain’s number one food retailer Tesco PLC (LON:TSCO) will unveil its Christmas trading news tomorrow, with market research firm Kantar Worldpanel yesterday naming the firm as the sector’s biggest festive winner.
-- Updates share price, adds further broker comment ...