Sainsbury’s shares eased off slightly on Thursday even though the supermarket giant announced rising operating profits amid strong grocery volumes in their half-year period.
Sainsbury’s has reported strong grocery performance with sales growth of 5.0% in its latest results, driving overall sales excluding fuel up by 4.6%. The retail giant saw like-for-like sales increase by 3.4%, with momentum building from 2.7% in Q1 to 4.2% in Q2.
The company’s core Sainsbury’s business showed robust growth, with its operating profits contribution rising by 8.7%, supported by strong grocery volume growth and an operating margin improvement of 20 basis points year on year.
However, this positive performance was partially offset by challenges in other segments, with General Merchandise and Clothing sales declining by 1.5% and Argos experiencing a 5.0% drop in sales. Argos is starting to be a drag on the group’s performance after several soft periods.
Overall, the retailer’s underlying operating profit rose to £503 million, representing a 3.7% increase.
“Sainsbury’s delivered a sweet set of first-half results, and investors will be relieved to see a volume-driven uplift in the Grocery business. But consumers haven’t been as hungry for General Merchandise & Clothing, which posted a decline in the period. That’s not been helped by its ownership of Argos, which gives it extra exposure on the general merchandise front and has weighed on overall performance a touch,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“But with that slip-up aside, Sainsbury’s continues to gain market share, and at a faster pace than competitors according to industry data. That’s been helped by its huge push to improve its service, products and value perception, which is helping to sway more customers to do their big food shop at Sainsbury’s, driving strong basket size growth.”