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J Sainsbury plc (LON:SBRY) reported better-than-expected sales, but analysts voiced caution over the chain's bid for Home Retail (LON:HOME).
The supermarket chain said first quarter like-for-like sales fell 0.8% excluding fuel and by 1% including fuel.
Some brokers had expected a drop of 2% or more and shares in the group rose 4.8p, or nearly 2%, to 251.5p.
Sainsbury's is awaiting the outcome of a consultation by the Competition & Markets Authority (CMA) on its planned takeover of the Argos owner.
The chain wants to buy Argos to boost its non-food product range and help it compete against online retailers and discount rivals.
But analysts have questioned whether Sainsbury's will struggle to integrate Home Retail into its business and whether it will distract it from its core food operation.
Broker Shore Capital said Sainsbury's management is hoping the CMA will approve the takeover in the third quarter of this calendar year.
Shore said that was likely to mean "there must be an assumption of no phase two investigation by the CMA."
But analysts Clive Black and Darren Shirley noted that Sainsbury's was facing a fresh challenge from Tesco PLC (LON:TSCO) and Wm Morrison Supermarkets PLC (LON:MRW).
"Whilst still early days, we sense some free lunch that Sainsbury's was gaining for some time may be closed off," Black and Shirley said in a note.
"Collectively, market conditions and competitor developments serve to make trading that little bit tougher for Sainsbury's, just as it is about to embark on its Argos adventure, CMA permitting."
Laith Khalaf at Hargreaves Lansdown said: "If the takeover proceeds, integration goes smoothly, and performance is improved, the deal will look like a triumph.
"But like Sainsbury, Argos has its own problems, and the outcome of two challenged businesses joining forces still remains very uncertain.’
Sainsbury's said in its first quarter update that clothing continued its strong growth, with sales up nearly 5%.
Admiral menswear did well in the quarter, with the latest football-inspired range already proving popular ahead of this month's Euro 2016 football.
General merchandise sales increased more than 5%.
In March, Sainsbury's reintroduced vinyl records after 25 years and it is the biggest vinyl retailer on the high street, having already achieved 8% market share.
In food, the group has ditched Brand Match and instead cut the prices of basic products such as chicken, eggs and cheese.
The vast majority of multi-buys will be phased out by August.
Its convenience business achieved growth of more than 6% and it opened seven new convenience shops in the quarter.
Sainsbury's online grocery business boosted sales more than 8% and orders by nearly 13%.
Total retail sales rose 0.3% excluding fuel and fell 0.1% including fuel.
Chief executive Mike Coupe said: "We have made a solid start to the year with like-for-like transaction growth across all our channels and Total volume growth.
"Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future."