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J Sainsbury perked up by Argos

The middle-market grocer has had a helping hand from its Argos acquisition
March 16, 2017

J Sainsbury (SBRY) shares were remarkably resilient despite a 0.5 per cent contraction in like-for-like retail sales during the fourth quarter. Early headlines highlighted the relapse from quarter three, when the supermarket chain had moved into positive sales territory on this front.

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But the share price has held up thanks to Sainsbury's increasingly diverse business model - a result of its acquisition of Argos from Home Retail Group a year ago. Sales there rose 3.8 per cent, or 4.3 per cent on a like-for-like basis during the final quarter. Bringing the two businesses together, like-for-like sales for the group rose 0.3 per cent over the same period.

The market did voice its concern that Sainsbury's top-line growth wasn't stronger on the grocery side given the expectation that British supermarkets should benefit from a more inflationary environment. After all, it seems to have helped Argos outperform the wider market by a couple of percentage points, according to analysts at Shore Capital. Wage and currency pressures have prompted a swathe of price increases across multiple retailers this year, with further cost inflation expected should sterling stay at current levels and company hedging policies expire.