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Analyst sounds note of caution over Sainsbury’s Argos deal


Sainsbury’s acquisition of Argos could be an unwanted distraction at a crucial time, one City analyst warned last week, in spite of a broadly positive set of results announced by the retailer.
Sainsbury’s reported group sales of £23.5bn in the year to March 12, 1.1% down from £23.8bn at the same time last year. Statutory pre-tax profits came in at £548m, from a loss of £72m at the same time last year, but underlying profits of £587m were 13.8% down on the £681m reported last time.

As reported by our colleagues at InternetRetailing, with online grocery sales growing by almost 9%, while order numbers rose by almost 15%, Sainbury’s CEO Mike Coupe says it is well on track to giving shoppers the right multichannel shopping experience.

The acquisition of Argos will give Sainsbury’s much needed scale in general merchandise, and help bulk out its delivery network to a potentially unparalleled degree. Speaking at eDelivery Expo (EDX16) last month, Richard Locke, head of general merchandising at Ocado stressed the importance of offering a broad food-and-non-food range to capture more spend-per-customer and strengthen loyalty. He also touched upon Ocado’s first-ever store – which will open later this year to support its beauty product sales in partnership with Marie Claire magazine, and its trial of click-and-collect points on the London Underground network.

Sainsbury’s says it will almost double its network of click-and-collect grocery points – which were launched in March 2015 – to 200 by the end of the next financial year.

A late-comer to grocery click-and-collect, Sainsbury’s is dwarfed by rivals such as Tesco and Asda, and lacks the online sophistication of Ocado. But it is its lack of scale that caused HSBC analyst David Mccarthy to sound a note of caution last week.

He said that its lack of scale means Sainsbury’s will not be able to respond if Tesco and Asda “turn the heat up again”.

“We remain cautious on Sainsbury, expecting further declines in profits and dividends over the next several years,” he said. “Argos integration will confuse the numbers for a while, but the real issue is the potential disruption Argos could bring at a crucial time.”

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