J Sainsbury plc (LON:SBRY)’s decision to buy catalogue retailer Argos paid off in the fourth quarter as Total like-for-like sales grew 0.3%.
In the nine weeks to 11 March 2017, a 4.3% increase in Argos like-for-like sales offset a 0.5% decline in the struggling core supermarket business, excluding fuel sales.
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The UK’s so-called Big Four supermarkets, which includes Sainsbury’s, Tesco, Asda and Morrison’s, have long been engaged in a pricing war as they lose market share to smaller discounters Aldi and Lidl.
Now a weaker pound following last June’s Brexit vote has added further pressure on supermarkets as it has pushed up import costs.
Sainsbury’s chief executive Mike Coupe said in a statement: "The market remains very competitive and the impact of cost price pressures remains uncertain. However, we are well placed to navigate the external environment and remain focused on delivering our strategy."
Today’s trading statement also showed Total retail sales, excluding fuel, dropped 1.4%. Including fuel, Total retail sales fell 0.3% but rose 0.3% on a like-for-like basis.
More positively, online grocery delivery business achieved 7% growth with orders up 8%.
Convenience store sales also delivered a Total sales increase of about 7% as the group opened 10 Sainsbury's Local stores in the quarter.
Sainsbury’s general merchandise sales fell 4%, reflecting a later Mother’s Day and Easter this year.
Total sales growth at Argos was 3.8%, driven by growth in mobile phones, video gaming, wearable technology and sports equipment.
Sainsbury’s completed the acquisition of Home Retail Group, which owns Argos and Habitat, last September in an effort to expand the business away from the troubled supermarket sector.
Following the successful integration of the business, Sainsbury’s has opened a further 11 Argos stores in its supermarkets, bringing the Total to 41. It also opened another Habitat, a retailer of household furnishings, in a Sainsbury’s supermarket to a Total of eight.
Neil Wilson, senior market analyst at ETX Capital said: “Strip out Argos and these figures from Sainsbury’s don’t look so clever. Like-for-like sales declined by 0.5% in the fourth quarter, after rising 0.1% in Q3. "
He added: "On the one side it’s got discounters like Aldi and Lidl smashing prices down and stealing market share, while Tesco and Morrisons are in the middle of strong turnaround programmes that leave Sainsbury’s trailing."
Shares fell 0.96% to 268.80p in early trading.
-- Adds broker comments, share price reaction --