Sainsbury’s to report recovery thanks to Argos gains and inflation

The supermarket giant is tipped by City analysts to report a 2 per cent rise in like-for-like sales over the period, a significant improvement on the last quarter’s 0.3 per cent.

Overall sales are expected to be boosted by a further rise in inflation and a strong performance in non-food categories, as well as growth at Argos. 

James Grzinic, analyst at Jefferies, said the performance will be boosted by “recovering supermarket like-for-like sales, albeit with growing inflation masking soft food volume performance, and solid Argos gains”. 

The pound’s collapse following the Brexit vote has driven up inflation which, in moderation, can help supermarkets boost their sales and profit margins. 

However, it can also drive shoppers to seek out bargain alternatives as rising costs are passed on to consumers. 

In May, the Big Four chain warned over a hit from falling consumer confidence as price hikes start to bite after it suffered its third straight year of falling profits. 

Sainsbury’s said the squeeze on household spending was impacting general merchandise and clothing sales growth. 

This was only partly offset by a £77million boost from the recently bought Argos chain, snapped up last year when it took over Home Retail Group for £1.4billion. 

Sainsbury’s is forecasting cost price inflation of 2 per cent to 3 per cent over the financial year, which is providing a welcome fillip for underpressure food sales. 

First-quarter results will combine the numbers for Argos and Sainbury’s for the first time since the acquisition last year. 

Although no split for Argos will be provided this time around, Barclays analysts expect like-for-like sales growth at the chain to track in line with the two prior quarters, at around 4 per cent. 

With the Argos acquisition secured, Sainsbury is continuing to look for brands to add to its shopping basket. 

It is understood the group is now looking to buy Nisa, the network of more than 2,500 independently owned convenience stores, in a deal worth close to £130million – as part of a response to Tesco’s £3.7billion merger with wholesaler Booker.