FTSE 100: Sainsbury's to retain more standalone Argos stores as sales rise

Sainsbury’s LONDON, UNITED KINGDOM - 2021/03/05: An elderly man wearing a face mask as a precaution against the spread of covid-19 walks past 'Argos Opening Soon' sign displayed in a window of Sainsbury's superstore in London. (Photo by Dinendra Haria/SOPA Images/LightRocket via Getty Images)
Sainsbury’s, which owns Argos, is now expected to have 160 standalone Argos stores by March 2024 rather than a previous target of 100. Photo: Dinendra Haria/SOPA Images/LightRocket via Getty

Sainsbury’s (SBRY.L) is set to retain more standalone Argos stores after posting an increase in the outlet's sales in its half-year results.

The UK's second-largest retailer said Argos increased sales in the second quarter for the first time in more than a year and that it would close fewer standalone Argos stores than previously expected.

Argos sales were up 1.6% year-on-year during the second quarter period to 17 September.

Total revenues for the retail group jumped 4.4% to £16.4bn ($18.46bn) over the first and second quarters compared with the same period last year.

Sainsbury’s, which owns Argos, is now expected to have 160 standalone Argos stores by March 2024 rather than a previous target of 100.

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The supermarket has been closing standalone Argos stores over the past two years and relocating them inside Sainsbury's stores.

It now has 400 Argos outlets in total, but by March 2024 plans to have 430 to 460 Argos stores inside Sainsbury’s supermarkets, 450 to 500 collection points and 160 standalone outlets.

Sainsbury's said: "Our Argos transformation programme is on track and profitability is significantly higher than pre-pandemic levels.

"We now have 414 Argos stores inside Sainsbury’s supermarkets, making it easier for customers to shop for general merchandise conveniently.

"We have opened 11 Local Fulfilment Centres, ensuring we can serve more customers with more products faster."

The retailer's underlying pre-tax profit declined by 8% to £340m over the half-year to 17 September, compared with the same period last year.

The dip in profits shows that the retailer is being affected by the impact of soaring costs due to inflation, which is exacerbating the current cost of living crisis.

Simon Roberts, chief executive of Sainsbury’s, said: “We really get how tough it is for millions of households right now.

“Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can.”

Orwa Mohamad, analyst at Third Bridge, said: "Sainsbury’s margins are under incredible pressure because they cannot pass on the full costs of inflation to their customers. They are also facing intense competition from discounters.”

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Charlie Huggins, head of equities at Wealth Club, said: "These are solid enough results from Sainsbury's, but it is difficult to get excited. It’s just such a tough industry, with fierce competition, fickle consumers and thin margins.

"UK grocery shoppers have an abundant choice, from premium shops like Waitrose, Ocado (OCDO.L) and M&S (MKS.L) to Asda, Aldi and Lidl at the other end. In the middle is Sainsbury's.

"It does its job perfectly well but isn’t perceived as the cheapest or the best. This makes for a tough gig, especially in an inflationary environment. To be fair to Sainsbury's, it isn’t taking this lying down.

"It has lowered prices and significantly increased online capacity. But all this comes at a cost. With the economy being strangled by higher interest rates and inflation, Sainsbury’s will have to run very hard just to stand still."

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Richard Hunter, head of markets at Interactive Investor, said: "The supermarket sector is one where companies find that there is often much running just to keep still. Against fierce competition on price, particularly at a time when the cost-conscious consumer is prepared to shop around, a recent survey suggested that Sainsbury’s market share had declined once more to 14.7% from a previous 14.9% (which itself was a drop from 15.2%).

"The group is painfully aware of the simplicity of a lower price offering being more likely to yield results and, by the end of March next year, expects to have invested £500m in containing shelf prices, largely through its own focus on cost reduction internally."

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