Sainsbury's has delivered a mixed trading update for the crucial Christmas period, revealing a strong performance in its supermarkets was offset by a decline in sales at its Argos general merchandise chain.
Grocery Strength Versus General Merchandise Weakness
The retail giant reported that sales at its core grocery stores increased by 3.4% in the 13 weeks to January 3. However, over the same period, sales at Argos fell by 1%. The contrast was even starker over the final six weeks of the quarter, where Sainsbury's total sales grew 4.6% but Argos saw a 2.2% decline.
The company explained that while it sold more items at Argos, the average price of products dropped. This was attributed to subdued spending on higher ticket items like furniture, intense promotional activity across the sector, and a weak gaming market.
Significant Headwinds in a Tough Market
Sainsbury's pointed to several challenges that impacted Argos's performance. The retailer faced significant headwinds from online traffic trends and a difficult, highly promotional general merchandise market. Underlying these issues was a broader context of weak consumer confidence, which particularly affected non-essential purchases.
Interestingly, the group's online grocery sales surged by 14% during the quarter, a boost attributed to growing consumer demand for rapid delivery services. Conversely, sales of its Tu clothing line were impacted by softer demand and milder winter weather.
Profit Expectations and Strategic Focus
Despite the challenges at Argos, Sainsbury's Group Chief Executive Simon Roberts stated that the strong grocery performance means the company remains on track to meet its profit expectations. He confirmed the firm expects to deliver a retail underlying operating profit of more than £1 billion.
Roberts said, "We have made balanced choices to invest and sustain the strength of our competitive position through the most important trading period of the year." He added that these investments in value, quality and service had driven grocery momentum and market share gains.
The company also announced plans to return more than £800 million to shareholders in the current financial year, which will include a special dividend of £250 million.
The Guardian reported that Argos's continued underperformance may fuel speculation about Sainsbury's long-term plans for the chain. This follows reports last autumn that Chinese retail group JD.com had explored a potential bid for Argos.
