Sainsbury’s second-quarter sales dented by Argos

The grocer’s same-store sales slipped 0.2% in the 12 weeks to September 21, but total retail sales edged up 0.1%.

Sales in its core grocery division increased 0.6% as it lauded improvements in its performance “relative to the market”.

Clothing sales advanced 3.3% during the quarter, but general merchandise sales dropped 2%.

Sainsbury’s cautioned that first-half profits would fall around £50m year-on-year as a result of the phasing of cost savings, “unseasonal weather” and increased marketing costs.

But the supermarket giant insisted it was on track to meet full-year profit expectations. Analysts expect the business to deliver an underlying pre-tax profit of around £632m.

Boss Mike Coupe said: “Sales momentum was stronger in all areas and we further improved our performance relative to our competitors, particularly in grocery. We have focused on reducing prices on everyday food and grocery products and expanding our range of value brands, which have been very popular with customers. At the same time, we are investing significantly in our supermarkets, driving consistent improvements to service and availability.

“Argos continued to grow market share in key categories, but sales were impacted by reduced promotional activity and the timing of new product releases in gaming and toys. Clothing sales were boosted by clearance activity and strong online growth and Tu continued to grow market share^.”

Sainsbury’s said it plans to shutter another 60-70 standalone Argos stores and open around 80 new shop-in-shops at its larger supermarkets over the next five years.

It wants to close up to 15 supermarkets, but will open 10 new locations, and is also eyeing 110 new convenience stores alongside up to 40 closures.

Further details of those plans are expected to be revealed at Sainsbury’s capital markets day in Southampton, which kicks off this morning.

Prior to the meeting of analysts and investors at its new-look Hedge End store, Sainsbury’s said it would immediately scrap new mortgage sales at its banking arm and pull the plug on any further capital injections into the business beyond the £35m planned for 2019/20.

Sainsbury’s said it remained “confident” in its core supermarket business and would continue to invest in value, service, its store estate and digital initiatives to drive sales.

In order to free up cash to reinvest into the business, Sainsbury’s plans to slash costs by a further £500m over the next five years. Much of those savings will be garnered by bringing the Sainsbury’s and Argos businesses closer together, while store closures will deliver an operating profit benefit of around £20m per year.

However, Sainsbury’s said it would book a one-off costs of closures and impairments between £230m and £270m.