Warning takes gloss off Sainsbury's Christmas sales

Sainsbury's, the UK's second largest supermarket group, has warned that the market for clothes and general merchandise will be tough in 2018, taking the shine off a slight upgrade to its profit forecasts.

A Sainsbury's store. Picture: Getty

The warning came yesterday amid weakening sales at its Argos catalogue shopping and online household goods subsidiary.

Sainsbury’s posted a 1.1 per cent rise in overall like-for-like sales over the 15 weeks to 6 January, helped by solid trade over the Christmas week. Total revenue rose 1.2 per cent in the period, with grocery sales growing 2.3 per cent.

However, the group also said that sales at its general merchandise arm, which includes Argos, fell 1.4 per cent, amid what it said were tough market conditions and financial pressures on consumers.

Mike Coupe, group chief executive, said: “We have to be cautious because that’s a reflection of the consumer environment. We live in uncertain times and we will adapt our business accordingly.”

Despite this, Sainsbury’s said it expects underlying profit to be “moderately ahead” of the £559 million City consensus forecast after signalling bigger cost savings from the integration of Argos, which it acquired in 2016.

The supermarket group said it now expected an extra £20m in cost savings. The shares closed up 2.2 per cent or 5.5p at 253.9p.

Online sales lifted 20 per cent in the period under review. Laith Khalaf, senior analyst at broker Hargreaves Lansdown, said Sainsbury’s “solid” performance came “despite its exposure to the fast-shrinking general merchandise market”.

Khalaf said consumers were spending less on discretionary items given stagnant wages and high inflation.

“Consequently, general merchandise sales are going backwards at Sainsbury’s, though not as fast as they are in the market at large, and if the supermarket can maintain that market share when consumers loosen their purse strings again, that would bode well for shareholders,” he added.

Over the Christmas week, Sainsbury’s recorded record sales, booked more than 340,000 online grocery orders and saw “stellar growth” in its Argos Fast Track delivery and collection.

Clothing sales were up just 1 per cent, hit by warm weather at the start of the autumn/winter season. Coupe added: “General merchandise and clothing grew market share in a challenging market.

“Argos stores in Sainsbury’s supermarkets performed particularly well and Argos saw record sales across the Black Friday period.”

Coupe is overseeing the rapid expansion of Argos stores within Sainsbury’s supermarkets, and the group now has 164.

Morrisons reported strong figures on Tuesday and Tesco, the UK and Scotland’s biggest supermarket operator, is expected to add to the positive food retailing picture today with its festive update.