Martin Flanagan: Argos cuts Sainsbury's some slack

The one silver lining in a cloudy City day for Sainsbury's yesterday was the latest Kantar Worldpanel figures showing a 1.7 per cent rise in the supermarket group's sales over the 12 weeks to 23 April.

After his initial scepticism, Martin Flanagan says the purchase of Argos seems to be paying off for Sainsbury's. Picture: Sarah Peters

That was as good as it got – the best performance by Sainsbury’s in three years, but the bar set pretty low in a difficult period for food retailers as discounter competitors and deflation have stalked the aisles.

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Even then, group chief executive Mike Coupe knows that the late timing of Easter and Mother’s Day this year was a significant factor in the delayed sales boost. And faster growth from its main rivals saw the group lose market share over the period, down to 16.1 per cent from 16.5 per cent a year earlier.

So the Kantar cavalry was cantering, not galloping to Sainsbury’s rescue after it revealed an 8 per cent fall in annual profits to £503 million in the financial year to 11 March, during which its core like-for-like supermarket sales fell 0.6 per cent.

To be fair to Coupe, Sainsbury’s pivotal action in the year – the acquisition of household goods retailer Argos – has confounded the critics by being one of the best performing parts of the group. Argos contributed a chunky £77m of profit to bottom-line earnings.

Coupe has already opened three-score Argos Digital stores in Sainsbury’s bigger outlets, and so pleased is he with the performance that he is ramping up plans to open 250 in all.

Some, including me, questioned at the time of the Argos acquisition whether food and household goods were natural bedmates, and that it could lead to the supermarket parent taking its eye off the grocery ball. But so far the strategy seems to be paying off.

Any pressures Sainsbury’s food business is facing from discounter competition in the form of Lidl and Aldi, emphatic turnarounds at Big Four rivals Tesco and Morrisons, and slowing earnings growth squeezing consumers, would have to be faced whether Argos was in the picture or not.

Argos has cut Coupe some slack with the City, where Sainsbury’s shares shed 5.7 per cent on yesterday’s disappointment, including a double-digit cut in the divi.

But if the core grocery performance doesn’t improve by this time next year uncomfortable questions are likely.