Analysts hail Sainsbury's 'Lazarus moment'

 
Caitlin Morrison
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Sainsbury's takeover of Argos seems to be going well

Sainsbury's share price rose at the open after the supermarket reported strong sales growth in the first quarter.

The stock was up one per cent at the time of writing as the retailer's trading update showed it beat expectations during the 16 weeks to 1 July, and analysts have hailed the company's turnaround under the leadership of Mike Coupe.

"It’s little short of a Lazarus moment," said John Ibbotson, director of retail consultancy Retail Vision.

"No longer leaning precariously on the Argos crutch, the Sainsbury’s core business is back on its feet and growing food sales at a healthy clip.

"These results are the first to blur the progress of the two brands since last year’s acquisition – but Sainsbury’s no longer needs to hide behind Argos’s success."

Ibbotson added that Coupe’s acquisition gamble is "looking more inspired by the day".

"But this has been no lucky break - the CEO’s turnaround plan was painstakingly drafted and diligently executed," he said. "And this strong return to form is a vindication of the strategy and a testament to his vision and courage."

Laith Khalaf at Hargreaves Lansdown was slightly less positive on what today's trading update means for Sainsbury's.

"The bigger picture is still a challenging one for the UK supermarkets," he said.

"Weaker sterling is pushing up food prices and putting a dent in consumers’ purses, while the trading environment remains as competitive as ever.

"Indeed the turf war the big supermarkets have been fighting against the discounters may start to look like a schoolyard skirmish if Amazon decides it wants a piece of the UK grocery market. The Amazon Fresh service is already being trialled in the UK, and the online retailer’s recent purchase of Whole Foods sent shock waves through the sector."

Khalaf added that it is "little wonder" that UK supermarkets are turning to new areas to try and boost profits.

"Sainsbury’s purchase of Argos looks to be delivering results, and the supermarket is reportedly in talks to buy the convenience chain Nisa to try to broaden its footprint, no doubt at least in part a response to Tesco’s proposed takeover of Booker and its network of franchised convenience stores," he added.

"While all this recovery, refocusing and reinvention goes on, investors have to accept there’s still a lot of uncertainty in the UK supermarket sector."

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