Sainsbury Raises Profit Outlook as Argos Delivers Benefits

Updated on
  • Grocer expects greater earnings boost from housewares chain
  • U.K. supermarkets outperform general retailers over Christmas

Sainsbury CFO Says U.K. Grocer’s 'Online Christmas' Was Robust

J Sainsbury Plc raised its profit guidance as the integration of housewares chain Argos advanced more quickly than expected, bolstering the U.K. grocer’s solid Christmas.

The London-based supermarket operator said it expects full-year underlying profit to be moderately ahead of the consensus analyst estimate of 559 million pounds ($756 million). Sainsbury said the 2016 purchase of Argos, which offers everything from televisions to table fans via online and catalog sales, would deliver as much as 20 million pounds more to its earnings this year than previously expected.

The shares rose as much as 1.8 percent early Wednesday in London.

Sainsbury continues a run of relatively strong results for the U.K.’s grocers that began with Wm Morrison Supermarkets Plc earlier this week, after nonfood retailers like Debenhams Plc and Mothercare Plc issued profit warnings following weak Christmas sales. In another sign of weakness in the country’s downtown shopping districts, suit seller Moss Bros Group Plc said full-year profit will be “slightly below” expectations.

Growth in Sainsbury’s core grocery business provides further evidence that British shoppers were willing to swallow rising food prices over Christmas, amid signs that inflation stoked by the pound’s weakness may be leveling off.

Food is a Top Priority

As food prices rose, Brits cut back elsewhere this Christmas

Source: British Retail Consortium

Note: sales data is a 3-month rolling average

“We’ve seen most of the Brexit-related inflation come through now. There may be more volatility in food prices due to changes in commodity prices but we are towards the end of the big inflation push,” Chief Financial Officer Kevin O’Byrne said in an interview on Bloomberg TV.

Overall like-for-like retail sales rose 1.1 percent in the 15 weeks through Jan. 6, Sainsbury said. That compares with analysts’ estimates for growth of 1 percent.

Argos had a strong Black Friday sale before Christmas, Sainsbury said. But overall sales of general merchandise, which include the chain, fell in the latest period. That indicates the synergy benefits may stem largely from cost cutting.

Tesco Plc and Marks & Spencer Group Plc are scheduled to report their Christmas season sales Thursday.

    Before it's here, it's on the Bloomberg Terminal.