Argos and inflation increases set to put Sainsbury's back on track for growth

Sainsbury's is expected to report a sales recovery when it announces first quarter results next week, helped by rising shop price inflation and a continued strong performance at Argos.

Scarborough's Sainsbury's store .pic Richard Ponter 171206a

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.

While the core supermarket business continues to face headwinds, 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.

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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.

The group revealed bottom line profits dropped 8.2 per cent to £503m for the year to March 11, while underlying profits fell 1 per cent to £581m.

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

This was only partly offset by a £77m boost from the recently bought Argos chain. 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 at around 4 per cent.