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J Sainsbury was among the biggest fallers on the FTSE 100 on Wednesday after strong grocery sales failed to allay concerns over its struggling general merchandise business.
Shares in the UK’s second-largest supermarket chain, which had climbed by almost a fifth in the run-up to the critical Christmas trading period, were down almost 5 per cent.
While grocery sales rose 9.3 per cent in the 16 weeks to January 6, boosted by both premium ranges and promotions, general merchandise sales, which include those of Argos, disappointed with a 0.6 per cent decline. Clothing sales dropped 1.7 per cent.
“The consumer discretionary side of the business is still under pressure, with Argos and its non-food divisions continuing to struggle where consumers are cutting back on non-essential purchases,” said Chris Beckett, head of equity research at Quilter Cheviot.
The lacklustre performance of general merchandise follows a three-year period in which Sainsbury’s chief executive Simon Roberts has focused on sharpening the chain’s food offering to compete with higher-end rivals such as Waitrose and discounters including Lidl and Aldi.
Those efforts paid off over Christmas with grocery sales comfortably beating the 6.5 per cent that analysts expected. But the weakness in general merchandise — Argos sales were down 4.2 per cent in the six weeks to January 6 — raised questions over whether it had been neglected, said Russ Mould, investment director at AJ Bell.
“Non-food sales were very disappointing, implying that Sainsbury’s is either leaving areas like clothing and Argos’s general merchandise offering to wither away or it simply isn’t pushing the products that people want,” said Mould.
Roberts said the general merchandise business faced particularly tough comparisons with the same period in 2022 when high energy bills drove demand for items such as electric blankets.
Sainsbury’s also said that general merchandise sales, excluding the closure of Argos stores in the Republic of Ireland, were up 1.5 per cent during the quarter.
Roberts said Sainsbury’s had entered 2024 “with good momentum” and was “working hard” to ensure it minimised any disruption to supplies through the Red Sea, where ships have been under attack from Houthi militants.
“We obviously bring a lot of our general merchandise products from across the world; we bring products like wine, but so far we’re navigating it . . . and making sure we mitigate the impact,” said Roberts.
The group said that overall like-for-like sales, excluding fuel, climbed 7.4 per cent compared with a 5.9 per cent rise during the same quarter last year.
It said it expanded its Aldi Price Match range this month to include more than 550 products to attract more cash-conscious shoppers and keep existing ones.
UK supermarkets have been cutting some prices as food inflation eases while Sainsbury’s and Tesco have also been deploying loyalty schemes such as Nectar and Clubcard to keep food bills low while harnessing shoppers’ data.
Sainsbury’s, which last month reached its highest grocery market share since December 2020 at 15.8 per cent, according to Kantar, said Nectar participation hit 90 per cent on an £80 weekly shop during the quarter, helping customers to save £16 on average during Christmas week.
It also stuck with its forecast that underlying pre-tax profit will be between £670mn and £700mn for the year.
