Sainsbury's like-for-like sales excluding fuel fell by one per cent in the its first half as the supermarket faces an uphill struggle to entice customers through its doors.
The company eked out more profit however. Sainsbury's share fell at the open, ditching almost five per cent after it warned second half underlying profit is expected to be lower than the first half.
Underlying group sales rose, climbing 2.1 per cent to £13.9bn fom £13.6bn in the same period last year.
Statutory profit before tax rose to £372m, up 9.7 per cent to £339m, though underlying profits dipped by 10 per cent.
General Merchandise sales grew by almost five per cent while clothing sales added nearly one per cent in a what the company called a "challenging market".
The company said it was on track to deliver its £500m cost savings target by 2017/18, and laid out a new three-year £500m cost savings target from 2018/19.
Acquisition of Argos-owner Home Retail Group remains on track with 250 Argos digital stores expected to be in supermarkets over the next three years.
There will also be 30 Argos digital stores and 200 digital collection points in supermarkets by Christmas and Sainsbury's said it is confident of delivering a £160m synergy target over three years.
Net debt fell by £485m from March 2016 to £1.3bn and Sainsbury's declared an interim dividend of 3.6p per share.
Shares in the group were down 5.5 per cent in morning trading.
What the company said
Chief executive Mike Coupe said:
The acquisition of HRG accelerates our strategy to give customers choice, convenience, speed and flexibility in when, where and how they shop. Food will always be at our heart and we are strengthening our Clothing, General Merchandise and Financial Services offers to realise the potential of the Group.
The combination of our products, services, customer data and fast delivery networks gives us a strong platform for growth and enables us to deliver clear synergies.
Why it's interesting
If possible competition is getting even tougher in the grocery market.
The big four – Tesco, Sainsbury's, Asda, and Morrison – have redoubled their efforts to cut costs in the face of the fierce price war brought on by the rise of the discounters.
Sainsbury's plans to further reduce costs in coming years means it isn't expecting a significant pick up in prices any time soon.
The picture was largely similar in the company's second quarter. The supermarket posted a 1.1 per cent decline in like-for-like sales, excluding fuel, "driven by food price deflation", but said like-for-like transactions grew across all channels.
John Ibbotson, director of the retail consultancy Retail Vision, said:
There's no denying that the Argos integration has proved a distraction for Sainsbury's in a brutal climate for grocers, but these better than expected numbers suggest its plan is starting to work. Sainsbury’s is by no means out of the woods yet but having a plan and sticking to it can count for a lot in the current environment.
Against a backdrop of an intense price war, resurgent Morrisons and Tesco, and fall in Sterling, Sainsbury's had to dig in and on this account it has done just that. Sainsbury's is playing a slightly longer game than some of its competitors but future-proofing itself in this way could pay dividends down the line.
David Stoddart, Analyst at Edison Investment Research said:
It is reassuring that Sainsbury believes it is on track to meet full-year consensus estimates.
However, investors with memories of Sainsbury’s previous attempts at diversification and concerned that the outlook for general merchandise is also challenging, might be happy to wait on the sidelines for a period.
Earlier in the week Sainsbury's went bargain hunting for its new chief financial officer, after it announced this morning it has appointed Kevin O'Byrne, currently chief executive of Poundland, to the role.
O'Byrne has been chief executive of B&Q UK and Ireland, as well as being its group finance director. He's also previously been group finance director at Dixons.
Sainsbury's strategy with HRG is well underway but could it be placing too much faith in Argos with its core business still under pressure from the discounters and the supermarket price war.