By James Davey
LONDON (Reuters) - Sainsbury's (L:SBRY), Britain's second biggest supermarket group, saw sales growth accelerate in its latest quarter, as it benefited from revamped food ranges and held down prices of staple goods despite rising inflation.
The group, which purchased Argos-owner Home Retail last year, cautioned trading conditions remained tough, however.
Sainsbury's and major rivals - market leader Tesco (L:TSCO), Asda (N:WMT) and Morrisons (L:MRW) - are grappling with the rapid growth of discounters Aldi and Lidl and having to cope with more expensive food imports due to a fall in the value of sterling since Britain voted to leave the European Union.
"The market is competitive and we continue to manage cost price pressures closely," CEO Mike Coupe said on Tuesday.
But he said Sainsbury's strategy of building a distinctive food offer ranging from own-brand "basics" to specialist "free from" and organic lines; growing its general merchandise and clothing businesses; and bearing down on costs, was working.
"Our strategy is delivering and we are well placed to navigate the external environment."
Shares in Sainsbury's rose up to 3 percent.
"Sainsbury's has improved volume growth while improving their price position in the quarter," said Bernstein analyst Bruno Monteyne, who has an "outperform" rating on the stock.
The group's retail like-for-like sales rose 2.3 percent, excluding fuel, in the 16 weeks to July 1, its fiscal first quarter - ahead of analysts' average forecast for a rise of 2 percent, and growth of 0.3 percent in the previous quarter.
This was the first quarter following the Home Retail purchase for which the group did not issue separate like-for-like sales data for Sainsbury's and Argos.
INFLATION, SAVINGS
"Our performance is really driven by own label (food)products and the fact that we’ve invested a lot over the last few years," Coupe told reporters, highlighting 430 new and improved products in the quarter, including over 250 new Summer eating lines.
He said that while overall grocery inflation had trended upwards in the quarter, Sainsbury's prices versus competitors were better.
"We’ve done a great job with our suppliers within our own (label) business to hold our costs down which means our price position has improved in the quarter," said Coupe.
He noted that prices of staples, such as broccoli, milk, apples, chicken breasts and eggs were cheaper than they were three years ago.
Sainsbury's said total grocery sales rose 3.0 percent, while transactions at supermarkets were up 1.9 percent. General merchandise sales increased 1.0 percent. Online grocery sales increased 8 percent, while sales at convenience stores were up 10 percent.
Finance chief Kevin O'Byrne said he was comfortable with analysts' average profit forecast of 572 million pounds for 2017-18, down from 581 million in 2016-17. Such an outcome would represent a fourth straight year of profit decline.
Sainsbury's has held takeover talks with franchised convenience chain Nisa, according to two industry sources, and is also reportedly considering a move for wholesaler Palmer & Harvey.
Coupe, however, wouldn't be drawn on possible deals.
"A business like Sainsbury’s is always looking at potential opportunities ... We talk to lots of people," he said.
"Most of these conversations come to nothing," added O'Byrne.
Sainsbury's said it remained confident of delivering 160 million pounds of earnings synergies from the Argos purchase by 2019 and was on track to achieve 145 million pounds of other cost savings this year.