Sainsbury's 'in good position' heading into Christmas despite supply challenges and weaker Argos sales

Sainsbury's has posted a double-digit hike in interim profits despite recent sales pressures after its Argos business was knocked by supply chain “challenges” and weaker demand for tech equipment.

The supermarket giant reported a 23 per cent hike in underlying pre-tax profits to £371 million for the 28 weeks to September 18. On a statutory basis, it swung to a £541m pre-tax profit from losses of £137m a year earlier.

Like-for-like group sales, excluding fuel, nudged up 0.3 per cent overall in the first half, but slipped 1.4 per cent in the second quarter after general merchandise sales tumbled.

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Total Argos sales slumped 12 per cent year-on-year in the second quarter, with the group blaming "supply challenges, unseasonal weather and lower demand for home office equipment and technology" in the second quarter.

Sainsbury's said like-for-like group sales, excluding fuel, nudged up 0.3 per cent overall in the first half, but slipped 1.4 per cent in the second quarter after general merchandise sales tumbled. Picture: Dan Mullan/Getty Images

The supermarket's general merchandise sales fell 8 per cent in the second quarter, as it came up against a tough quarter a year ago when demand was boosted amid lockdown restrictions.

But the group insisted it was "well placed" to cope with the supply chain issues and labour shortages. It also kept its full-year profit outlook of "at least" £660m, up from the £356m banked in 2020-21.

Chief executive Simon Roberts said: “Our industry faces labour and supply chain challenges. However our scale, advanced cost saving programme, logistics operations and strong supplier relationships put us in a good position as we head into Christmas.”

Retailers and supermarket chains have been battling amid global supply chain disruption and a lorry driver shortage in the UK that has left some shelves bare or lacking in choice and led to delivery delays.

But Roberts wrote to customers last week to reassure them that there would be plenty of products available in stores this Christmas despite the challenges in the supply chain.

Sainsbury’s interim results showed total grocery sales rose 0.8 per cent in both the first and second quarters.

Freetrade senior analyst Dan Lane noted: “Food’s finally back at the heart of Sainsbury’s. And it might just be the turning point the firm needs to really unlock its true value.

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“Rising costs and product shortages have hit the business but it looks like Argos is struggling more than the other divisions. Trimming down the segment and getting back to basics seems to be doing the trick.”

Richard Hunter, head of markets at investment platform Interactive Investor, said: “A sharp reduction in costs has been the major driver in improving profits, but the fiercely competitive environment remains a concern.

“Quite apart from competition provided by the discounters such as Aldi and Lidl, the recent sales of Asda and William Morrison could see renewed and invigorated propositions, while Marks & Spencer and Ocado provide further food for thought, let alone the ominously increasing Amazon presence.

“In terms of outlook, Sainsbury’s is leaving its expected full-year pre-tax profit unchanged at £660m with the normalisation of habits gaining further traction. Investment in price competition will also play a key role in the immediate future, especially with the impending and important Christmas season approaching.”

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