Sainsbury faces weaker non-grocery sales despite strong Christmas grocery growth

Investing.com -- Shares of J Sainsbury PLC (LON:SBRY ) fell over 2% on Friday after the retailer reported its third-quarter trading update. 

Despite strong grocery sales during Christmas, weaker performance in non-grocery segments and margin pressures weighed on the stock.

Like-for-like sales (excluding fuel) rose 2.8% in the 16 weeks to January 4, driven by a 4.1% increase in grocery sales. 

Premium "Taste the Difference" products saw a 16% rise, and holiday-specific items performed strongly. 

However, general merchandise, including Argos, saw a 1.4% decline, and clothing sales were flat.

Argos sales during the eight weeks to Christmas rose 1.1%, but the overall quarter showed a decline. Heavy promotional activities boosted sales temporarily but eroded gross margins.

The company also faces persistent cost inflation. While cost-saving measures are underway, Sainsbury’s Financial Services unit revised its underlying operating profit expectation upward to £30 million, exceeding its previous guidance of £15-£25 million. 

Customer shopping patterns showed a shift, with many delaying purchases until just before Christmas, resulting in record sales during those days.

However, this intreflects caution amid inflation and high interest rates, which continue to pressure household budgets.

Sainsbury expects to deliver full-year retail underlying operating profit in line with consensus and at the midpoint of its £1,010-£1,060 million guidance range, reflecting a growth of about 7%.

Source: Investing.com