Supermarket battles ‘tough trading backdrop’ on clothing and general merchandise amid poor weather and cost of living crisis with Argos sales down 6.2%
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said the “Arogs albatross neck around its neck can’t be ignored”.
At first glance, it’s a bit tough to work out what sort of results have landed in Sainsbury’s bagging area. Ultimately, the reduction in the rate of growth was partly to be expected, especially in grocery.
As inflation cools, the weather worsens and tough comparisons crop up on the course, eking out the amount of growth seen last year was always a difficult ask. But there is a lingering Sainsbury’s specific issue in its ownership of Argos. Electronics aren’t faring well in this economic climate, as people prioritise the essentials. General merchandise is the most cyclical area of the supermarket economy to be in, so being overweight in this arena really slows you down when times get tough. The additional exposure offsets and hides what has been a remarkable showing for the core grocery business.
An exceptionally strong grocery performance at Sainsbury’s in Q1 was diluted by a more downbeat delivery in the general merchandise businesses, particularly Argos. This should represent the trough, which feels well understood by the market given the shares’ recent underperformance.
Sunnier weather in recent weeks should underpin… acceleration, with the chief drivers through the rest of the year an improving consumer environment and an easing [year-on-year] comparative.
