Tuesday 15 March 2016 7:21 am

Sainsbury’s share price falls despite posting a sales rise in the fourth quarter as deadline looms for Argos bid

Sainsbury's is continuing to prove itself the strongest of the big four supermarkets, with total and like-for-like sales up in the fourth quarter as it moves to phase out multi-buy offers entirely.

But the business has warned of ongoing challenges in the market as the price wars continue.

The figures

Total retail sales excluding fuel were up 1.2 per cent in the nine weeks to 12 March, while like-for-likes nudged up 0.1 per cent.

Including fuel, sales were up 0.5 per cent and down 0.4 per cent respectively. Over the quarter, the supermarket maintained market share against a backdrop of increasing competition from the likes of Aldi and Lidl, although Tesco and Asda are losing ground.

Over the full year the supermarket grew total sales ex fuel 0.4 per cent, while like-for-likes dropped 0.9 per cent.

Sainsbury's share price slipped 0.4 per cent on the open.

The strongest performances were outside the competitive field of food: clothing was up 10 per cent in the quarter, with the retailer dropping its 22nd Gok Wan collection in February to record response. Entertainment was up 11 per cent.

Sainsbury's Bank grew volumes 15 per cent in insurance new business, while travel money was up 12 per cent for in-store transaction volumes.

At the end of the quarter, Sainsbury's had 601 supermarkets and 773 convenience stores.

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Why it's interesting

Chief executive Mike Coupe is proving that he was a capable successor to Justin King, navigating Sainsbury's through a potentially tricky period after the 10 year golden era. Although the supermarket has had a tough few months, the fact that total sales are up and market share maintained when the likes of Tesco, Morrisons and Asda are struggling should please investors.

But the real question is what is happening with Sainsbury's bid for Argos, a decision of what to do next has been pushed back until 18 March after it was gazumped by Christo Wiese-backed Steinhoff, which is offering £1.4bn.

It is thought that Sainsbury's will likely up its offer, reportedly to £1.5bn. It originally offered £1.3bn. Last week Sainsbury's paved the way to make a hostile bid for Home Retail Group.

What Sainsbury's said

Coupe said it was a "strong" performance, boosted by healthy New Year products including spiralised-inspired boodles (butternut squash noodles) and courgetti.

But he also warned that the market will "remain competitive as food deflation continues to impact sales growth".

"We have traded well this year and are making excellent progress implementing our strategy. The market will remain competitive but we are confident that we will continue to outperform our major peers."

What analysts said

Alex Joyner, senior market analyst at Galvan Research, said: "Today’s forecast-beating figures should be welcomed by investors and build on encouraging recent market share data.

"It looks like Sainsbury’s is beginning to outpace its other ‘big four’ rivals in the ongoing price war. Challenges remain for the grocer, but the first quarterly sales growth in over two years is a great sign and should help with its takeover approach for Home Retail."

Phil Dorrell, partner at Retail Remedy, added: "Sainsburys has done well to retain what is a new promiscuous brand of customer. It's confident and dynamic leadership is evident in clear range and price messages consistently delivered in store.

"Sainsburys might be in a position to up its bid for Argos to £1.5bn to top the current price Steinhoff has offered, but will that be enough to claim the prize?

"The advantages of a Sainsburys owned Argos have been spelled out by Coupe but there is a real risk that this becomes too much of a distraction to the day to day business of serving and retaining the customer. While the last two years have proved Sainsburys is a confident and objectively led business, it is the next two years that will see them earn their corn. And if Sainsburys is unsuccessful with its bid for Argos, what is plan B?"