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Sainsbury's sees boost from Argos deal

Sainsbury’s says its latest half-year results have been boosted by its takeover of catalogue retailer Argos.

Cost savings had lifted profits, while adding Argos stores to Sainsbury’s outlets was “driving an increase in trading intensity”, the retailer said.

Sainsbury’s, which is planning to merge with rival Asda, said half-year underlying profits rose 20% to £302m.

However, when a host of exceptional costs are taken into account, profits nearly halved.

The UK’s second-largest supermarket said pre-tax profits for the 28 weeks to 22 September were £132m, compared with £220m a year earlier.

The profit figure was pushed down by costs related to restructuring store management teams, the Argos integration and preparation for the Asda deal, which is being examined by competition authorities.

Like-for-like sales growth for the period – which strips out the impact of new retail space – was 0.6%, which disappointed analysts.

Sainsbury’s chief executive Mike Coupe said the grocery market was “extremely competitive”.

He told the BBC’s Today programme: “It’s a pleasing set of results against a difficult market backdrop, largely driven by the acquisition synergies from the Argos business.”

Julie Palmer, partner at Begbies Traynor, said: “The purchase of Argos has been a well-crafted tactical decision to draw greater footfall into its stores and reduce cost savings measures, with 90 Argos units expected to be opened in stores this financial year.

“However, there is still uncertainty around its merger with Asda, with the regulators yet to give the thumbs-up to the deal.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Argos is proving to be an ace up the sleeve for Sainsbury’s in a tough retail environment.

“The World Cup and barbecue weather over the summer provided a welcome shot in the arm for the supermarket, though without this seasonal stimulus, sales growth from existing outlets wouldn’t look great.”

He praised Sainsbury’s decision to use up excess supermarket space by installing Argos outlets, calling it “a pretty canny move when you consider that many consumers will like the idea of combining their Christmas grocery shop with picking up some gifts from Argos at the same time”.

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BBC News – Business

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