J Sainsbury plc (LON:SBRY) shares were higher in early trading after the retailer reported slightly better than expected first quarter trading with good growth in grocery sales, while it also outperformed the market in General Merchandise and Clothing with the Argos acquisition continuing to perform well.
In a trading statement for the 16 weeks to 1 July, the FTSE 100-listed firm said its retail like-for-like sales rose by 2.3% excluding fuel, and were up 1.6% including fuel, slightly better than the 1.5% growth forecast by Barclays Capital.
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In afternoon trading, Sainsbury’s shares were 1.2%, or 3.1p higher at 252.0p, with peers Tesco PLC (LON:TSCO) and William Morrison Supermarkets PLC (LON:MRW) also both finding gains.
John Ibbotson, director of the retail consultancy Retail Vision said: “It’s little short of a Lazarus moment. No longer leaning precariously on the Argos crutch, the Sainsbury’s core business is back on its feet and growing food sales at a healthy clip.
“These results are the first to blur the progress of the two brands since last year’s acquisition – but Sainsbury’s no longer needs to hide behind Argos’s success.”
He added: “With the Argos brand continuing to fire on all cylinders, Mike Coupe’s acquisition gamble is looking more inspired by the day.”
"Strong food sales where we have invested in product innovation"
In the retailer's trading update, Coupe, Sainsbury’s group chief executive, said: “Grocery sales are up three per cent and transactions up two per cent, with like-for-like transaction growth in all channels.
“We have seen strong food sales where we have invested in product innovation, such as our new Summer eating ranges. Our Produce category, where we know quality matters most to customers, performed particularly well, outperforming the market with volume growth of over one per cent.”
READ: Sainsbury's weak as supermarkets sales continue to decline, although Argos provides an overall boost
He added: “Groceries Online sales grew by eight per cent and Convenience delivered strong growth of ten per cent, in line with our strategy of being there for customers whenever and wherever they want to shop.
Sainsbury’s said general merchandise sales grew by 1% on an underlying basis - including Argos in last year's base - outperforming the market despite the impact of closing 78 Argos in Homebase and 84 Habitat in Homebase concessions over the last year
Argos continues to perform well
It added that Argos continues to perform well, growing market share, with strong growth in Mobile, Audio and Tech categories and good growth in Core Electricals and Toys. Online and mobile sales continue to rise at Argos, with online sales up 10%.
The group said clothing sales were up over 7%, reflecting strong growth both in stores and online
Coupe commented: "General Merchandise and Clothing, including Argos, outperformed the market, with Fast Track delivery and collection seeing a stellar performance during the quarter, particularly during the period of warm weather when customers wanted to buy and receive their products the same day.”
The CEO concluded: "The market is competitive and we continue to manage cost price pressures closely. Our strategy is delivering and we are well placed to navigate the external environment."
The retailer said it remains on track to open around 135 Argos Digital stores in Sainsbury's supermarkets by the end of 2017/18, which will take the total to 175, and is confident of delivering £160mln of underlying earnings (EBITDA) synergies from the Argos acquisition by March 2019.
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