Sainsbury’s profit hopes lifted by Argos but shopper squeeze looms

Supermarkets chain Sainsbury’s today urged caution over a challenging market despite surprising the City by upgrading its profit expectations.

Chief executive Mike Coupe said: “The market is challenging. There certainly is a little bit of squeeze on consumers and where people are able to defer purchases they will do.”

His remarks came after Sainsbury’s posted a 1.1% rise in same-store sales, excluding fuel, for the 15 weeks to January 6. Grocery sales were up 2.3%, slightly behind the pace of food price inflation, helped by a hike in food prices.

“We’ve done everything we can as a business to mitigate that but we can’t get away from the fact that food prices are going up,” Coupe said. However, he added that prices could come down slightly over the next six to nine months if inflation woes ease.

Sainsbury’s expects an extra £20 million in cost savings from merging its supermarkets with Argos quicker. The grocer gobbled up Argos for £1.4 billion in 2016. As a result, it now expects underlying profits to be between £80 million and £85 million, ahead of the £65 million forecast previously.

The chain said it now also expects to save £40 million more, exceeding its three-year cost-saving target of £500 million. The shares rose 1% to 251p. The performance was dragged by a 1.4% fall in general merchandise and clothing growth slowing down, despite a strong Black Friday for Argos.

Sainsbury’s had “record” sales over Christmas, boosted by its popular 25p vegetables and a push to introduce more upmarket food, such as its Loaded Cheese & Bacon Potato Skins.