Photographer: Matthew Lloyd/Bloomberg

Sainsbury Sales Bask in Summer Heat as Argos Deal Delivers

  • Food sales growth accelerates as British shoppers pay more
  • CEO Coupe downplays signs of slowdown among U.K. consumers

Early summer barbecues and higher prices proved a potent combination for U.K. supermarket chain J Sainsbury Plc in the first quarter of its financial year.

As sweltering temperatures lifted demand for everything from burgers to paddling pools, like-for-like retail sales rose 2.3 percent, London-based Sainsbury said Tuesday. That compared with the average estimate of nine analysts for a 1.9 percent increase.

While boosted by the weather and Brexit-fueled food-price inflation, the sales nevertheless provided backing for the strategy of Chief Executive Officer Mike Coupe, whose 1.4 billion-pound ($1.8 billion) takeover of general-merchandise chain Argos last year initially drew investor skepticism. Sainsbury outperformed the market in areas including fresh produce, general merchandise and clothing, the company said.

“Sainsbury’s has done all the right things by integrating Argos into the business while simultaneously sticking to its strengths of innovation, quality and convenience in groceries,” John Ibbotson, director of consultant Retail Vision, said by email.

The shares rose 0.9 percent to 251.2 pence at 10 a.m. in London.

Sainsbury’s figures are the first since the retailer moved to a new reporting structure in which it no longer splits out individual sales performances at Sainsbury and Argos stores. Total general-merchandise and clothing sales rose 1 percent and 7.2 percent, respectively.

Sales at convenience stores increased 10 percent, the company said, highlighting the performance of one of the U.K.’s most dynamic retail sectors.

Holding Conversations

Coupe downplayed recent signs of a slowdown among U.K. consumers, saying shoppers are in “broadly the same place” they were at Christmas.

The CEO also appeared to cool speculation over the possibility of more acquisitions, saying the company is always holding conversations, most of which come to nothing. Sainsbury is said to be studying the books of Nisa Retail Ltd., with a possible bid expected to value the corner-store supplier at around 130 million pounds ($168 million).

The interest in Nisa follows Tesco Plc’s surprise $4.6 billion acquisition of Booker Group Plc, which is currently being reviewed by regulators. The U.K.’s two leading grocers are seeking to broaden their presence in the fast-growing convenience market, as discounters Aldi and Lidl continue to increase their share of supermarket spending.

A combination of Sainsbury and Nisa, which generated revenue of 1.3 billion pounds last year, would be considerably smaller than that of Tesco and Booker, which if completed would mean the U.K.’s leading grocer would end up supplying about 30 percent of the U.K.’s convenience-store market.

“Sainsbury’s doesn’t have to do this deal because the additional sales they would gain wouldn’t be game changing,” said Charles Allen, an analyst at Bloomberg Intelligence.

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