A Sainsbury’s store. Picture: GALLO IMAGES/AFP/BEN STANSALL
A Sainsbury’s store. Picture: GALLO IMAGES/AFP/BEN STANSALL

London — British supermarket group Sainsbury’s cautioned on Wednesday that the market for general merchandise and clothing would be tough in 2018, taking the shine off a slight upgrade to its forecast for annual profit.

With Britons under pressure from slow wage growth compounded by higher inflation, company updates and survey data in January show they cut back on almost everything other than food purchases in the run-up to Christmas.

Sainsbury’s, which extended its product range when it bought toys and electricals retailer Argos for £1.1bn in 2016, indicated that trend would continue in 2018.

"We have to acknowledge the fact that the [nonfood] market is challenging and there’s certainly a little bit of a squeeze on consumer disposable income; where people are able to defer purchases they do," CE Mike Coupe said. "We have to be slightly cautious in our outlook because it’s reflective of the current consumer environment."

Sainsbury’s, the second-biggest UK supermarket group, said its general merchandise sales fell 1.4% in the 15 weeks to January 6, its financial third quarter, having fallen 1.6% in the previous quarter. Clothing sales rose 1%, a sharp slowdown from second quarter growth of 6.3%. Coupe said Sainsbury’s still won market share in general merchandise and clothing despite the "challenging conditions".

He said UK consumers tightening their belts could in fact benefit Sainsbury’s food business since "people eat out less and tend to eat in".

However, competition is intense in that part of the business where Lidl and rival German discounter Aldi UK have both said they will step up investment in 2018, keeping up the pressure on Britain’s established big four supermarkets.

Sainsbury’s said retail like-for-like sales, excluding fuel, rose 1.1% in the third-quarter — ahead of analysts’ average forecast of 0.9% and growth of 0.6% in the previous quarter.

Total grocery sales grew 2.3%, with groceries online and convenience store sales up 8.2% and 7.3%, respectively. Online accounted for a fifth of the group’s sales in the quarter.

Coupe said grocery sales volumes "went backwards slightly" in the quarter but predicted food price inflation would fall out of the sector over the next six to eight months.

On Tuesday, Britain’s fourth-ranked supermarket chain, Morrisons, beat Christmas sales growth forecasts, while industry data indicated market leader Tesco outperformed its listed rivals during the festive quarter.

Tesco will update the market on Thursday.

On Wednesday Lidl UK said its total sales grew 16% in the Christmas period.

Sainsbury’s said it expected to achieve £80m-£85m of earnings synergies from Argos by March, ahead of previous guidance of £65m. As a consequence underlying pretax profit for the full year would be moderately ahead of analysts’ consensus for an underlying pretax profit of £559m, down from £581m in 2016-17.