• Clothing sales growth slowed at Sainsbury's in the third quarter, rising 1%, compared to 9.4% in the year-ago period.
  • The UK supermarket group said apparel sales increases market share and outperforming a weak market.
  • It now expects 2017/18 underlying profit to be moderately ahead of published consensus.
Clothing sales edged up 1% for the 15 weeks to 6 January

Clothing sales edged up 1% for the 15 weeks to 6 January

Apparel sales growth slowed significantly in the third quarter at UK supermarket group Sainsbury's, suggesting that the strong run of growth its clothing division Tu has enjoyed may well be coming to an end.

Clothing sales edged up 1% for the 15 weeks to 6 January, increasing Sainsbury's market share and outperforming a weak market impacted by warm weather at the start of the autumn/winter season.

However, the rise was notably smaller both year-on-year and quarter-on-quarter which came in at +9.4% and +6.3% respectively.

Meanwhile, general merchandise sales slipped 1.4% in the period, while total retail sales were up 1.2%, excluding fuel, and like-for-like sales up 1.1%, also excluding fuel. Online accounted for 20% of the group's sales during the quarter.

Looking ahead, the group remains cautious about the consumer environment in the coming year, noting it expects market conditions to "remain challenging" and, as a consequence, expects 2017/18 underlying profit to be moderately ahead of published consensus. This is primarily due to further synergies from the Argos acquisition, with EBITDA from the deal will now forecast to come in at GBP80-GBP85m versus previous guidance of GBP72-GBP77m.

"We're pleased with our performance across the group this quarter," said CEO Mike Coupe. "We had a strong Christmas week, with record sales, over 340,000 online grocery orders and stellar growth in Argos Fast Track delivery and collection.

"We delivered an excellent operational performance across the group, with great availability, strong customer satisfaction scores and our lowest level of waste ever at Christmas."

Molly Johnson-Jones, senior retail analyst at GlobalData, notes clothing sales growth dropped significantly in the quarter, suggesting the strong run of growth that Tu has seen as it matures may well be coming to an end.

She adds: "Last quarter's 9% drop in profitability was a concern, but we saw it as more of a long-term strategy, but this quarter Sainsbury's has said that it will achieve full-year profit slightly above expectations due to further synergies from the Argos acquisition.

"Overall, Sainsbury's Q3 results are therefore positive, but should be taken in the context of a buoyant food and grocery market, where anything less than low-single-digit growth would be disappointing."