J Sainsbury plc (LON:SBRY) eked out a small rise in like-for-like sales in its fiscal first quarter, helped by Argos, which returned to growth after three quarters of declines.
Shares were up 2.4% in early afternoon trading on Wednesday to 326.3p, putting the stock among the top blue-chip risers.
Excluding fuel but including Argos, like-for-like sales rose 0.2% in the three months ended June 30.
That marks the slowest rate of growth since the second quarter of Sainsbury’s 2016/17 financial year and a sharp dip compared with the 2.3% rise it posted in the same period last year.
Ahead of expectations
But it was ahead of analysts’ forecasts, with some expecting like-for-likes to show a small decline this time around.
Argos, snapped up in September 2016, was the star performer. Sales in the general merchandise division, which is predominantly made up of the catalogue retailer, climbed 1.7% - the first time it had registered an uptick since this time last year.
“I am pleased with our progress in the quarter. The headline numbers reflect the level of price reductions we have made in key areas like fresh meat, fruit and vegetables since March,” said chief executive Mike Coupe.
“Our price position has improved and customers have responded well, resulting in a continuation of the improved volume trend we saw in the second half of last financial year.”
He added: “General Merchandise and Clothing, including Argos, continue to outperform a very challenging market and we are well placed to further grow market share.”
READ: Barclays expects Sainsbury's-Asda merger to go through
There was a brief mention of Asda, which Sainsbury’s is looking to marge with. UK regulators are still assessing the deal and a decision is not expected until next year, but analysts expect the tie-up to be given the green light eventually.
Britain’s second-largest supermarket said the proposed combination would create “a dynamic new player” in the UK retail market.
Sainsbury’s also noted that it has agreed a £3.5bn financing package with its lenders to help fund the deal.
Swimming in treacle
“The fact that Sainsbury’s has only managed 0.2% like-for-like sales growth in the last 16 weeks would suggest the business is swimming in treacle,” said AJ Bell investment director Russ Mould.
“Customers want cheaper goods which mean supermarkets across the board are slashing prices in order to stay competitive. That clearly comes at a cost.”
He added: “Sainsbury’s continues to lose market share, hence why it is cosying up to Asda to try and create the UK’s largest supermarket group.
“While its grocery arm is clearly struggling, Sainsbury’s is managing to keep its head above water with general merchandise and clothing, helped by the acquisition of Argos.
--Updates for analyst comment, share price--