Sainsbury's enjoys Christmas sales boost but warns over challenging market

Sainsbury's has upgraded its full-year profit forecast following a record Christmas, but the supermarket giant warned of a challenging market amid weaker sales at Argos.

The supermarket giant revealed a 1.1% rise in like-for-like sales over the 15 weeks to January 6, helped by solid trade over the Christmas week.

Total revenue rose 1.2% in the period, with grocery sales growing 2.3%.

The grocery chain said its 25p vegetable lines proved particularly popular, underlining how consumers are seeking the lowest prices amid soaring Brexit-fuelled inflation.

But Sainsbury's also flagged that sales at its general merchandise arm, which includes Argos, fell 1.4%, adding it is cautious about challenging market conditions and the consumer environment.

Boss Mike Coupe said: "We have to be cautious because that's a reflection of the consumer environment.

"We live in uncertain times and we will adapt our business accordingly."

Nevertheless, Sainsbury's said it expects underlying profit to be "moderately ahead" of the £559 million consensus after signalling bigger cost savings from the integration of Argos, which it acquired in 2016.

The supermarket is expecting an extra £20 million in cost savings, or "synergies".

Shares nudged up nearly 2% in morning trading to 253p.

Laith Khalaf, senior analyst Hargreaves Lansdown, said: "Sainsbury's put in a solid performance in the last quarter of the year, despite its exposure to the fast-shrinking general merchandise market.

"Consumers are spending less on discretionary items thanks to stagnant wages and rising inflation.

"Consequently general merchandise sales are going backwards at Sainsbury's, though not as fast as they are in the market at large, and if the supermarket can maintain that market share when consumers loosen their purse strings again, that would bode well for shareholders."

Over the Christmas week, Sainsbury's recorded record sales, booked over 340,000 online grocery orders and saw "stellar growth" in its Argos Fast Track delivery and collection.

Online sales accounted for 20% of the group's sales during the quarter.

Friday December 22 was the chain's biggest sales day for stores and it delivered an online grocery order to customers every second.

Despite falling general merchandise sales over the quarter, Argos was boosted by Black Friday as punters splashed out on products such as Xbox One X and Nintendo Switch.

Mr Coupe is overseeing the rapid expansion of Argos stores within Sainsbury's supermarkets, and the group now has 164.

Clothing sales were up just 1%, in a market that Sainsbury's said was impacted by warm weather at the start of the autumn/winter season.

Mr Coupe added: "General merchandise and clothing grew market share in a challenging market.

"Argos stores in Sainsbury's supermarkets performed particularly well and Argos saw record sales across the Black Friday period."

Supermarkets are battling rising costs linked to the Brexit-hit pound, falling consumer confidence and fierce competition in the sector as Lidl and Aldi continue their relentless march.

Morrisons reported strong figures on Tuesday and Tesco will update the market on festive trading on Thursday.