Sainsbury's expects stronger second half after happy Christmas

Sainsbury's like-for-like retail sales were down 0.4% over the festive third quarter but by less than the 0.7% forecast, leading the grocer to say that the second half as a whole is likely to be better than the first.

The supermarket, which is continuing to mull a bid for Home Retail after a November offer was rejected, lifted total retail sales 0.8% excluding fuel, as its new simpler pricing strategy of lower regular prices and reduced levels of vouchering and promotional participation helped grow transactions and volumes.

Chief executive Mike Coupe later said on a conference call that the company will "only pay what we can afford to pay" for Home Retail was rebuffed, adding that he will look for other opportunities if no deal is reached with the Argos and Homebase owner.

Coupe said the non-food scale of the potential merged entity would match John Lewis or Amazon UK.

One of the reasons Sainsbury's has been looking at Argos is for its much-admired hub-and-spoke logistics capabilities and multi-channel strength, but its own online grocery sales growth was impressive enough over the quarter, rising nearly 10% on orders up around 15%.

The grocer, whose Mog's Christmas Calamity charity campaign raised £1.5m for Save the Children, now has 101 click-and-collect sites nationwide.

Coupe said the investment in prices and quality remained on track.

"Food deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future. We will continue to remain competitive on price and our performance this quarter provides further evidence that our strategy is working."

Analysts were generally impressed wit the results.

Societe Generale said it was a good quarter which highlighted the group’s "compelling strategy and good differentiation" than the other Big Four players.

However, Shore Capital was expecting a better LFL performance and also noted that given the very good result from general merchandising ‎(up 5%) and clothing (up 6%), it felt Sainsbury's ex-VAT food LFL sales were a little weaker, -1.0% to -1.25%.

Hargreaves Lansdown said the stock remained "a play for the patient, although there are some continuing signs of improvement in what is an unrelentingly competitive sector".

Shares in the company wavered on Wednesday, initially falling several pence before regaining balance and then slipping 0.6% to 249.7p by 0915 GMT.