Sainsbury's raises profit outlook but sales growth slowdown hits shares

(Fixes typo in paragraph 2)

By James Davey

LONDON, Oct 22 (Reuters) - Sainsbury's, Britain's second-biggest supermarket group, followed industry leader Tesco in upgrading the lower end of its full-year profit outlook on Thursday, but slower sales growth in its second quarter sent its shares down 4%.

Sainsbury's published its first-half results two weeks after media reports that it held merger talks with smaller rival Morrisons earlier this year but walked away.

CEO Simon Roberts declined to comment on the reports.

"What I can say is that we're completely focused on the opportunities ahead for Sainsbury's," he said on a call with reporters.

Sainsbury's, which has a 15.2% share of Britain's grocery market, said like-for-like sales, excluding fuel, rose 1.2% in its second quarter to September 12, below analysts' average forecast of 1.9%, having been up 2.3% in the previous quarter. Tesco's second-quarter underlying sales were also softer.

SHARES FALL

Shares in Sainsbury's fell 4%, paring 2026 gains to 6.4%. Analysts pointed to concerns the softer sales growth could continue into the key Christmas quarter, while the supermarket group cautioned the market would remain "very competitive".

"There is also no upgraded buyback announcement to support the stock, like we saw at Tesco’s H1 results," said analysts at Bernstein.

Roberts said the summer trading partly reflected multiple heatwaves which changed shopping habits.

He also said Sainsbury's was up against a strong comparative performance in the first half last year when like-for-like sales rose 4.5%, boosted by disruption at competitors Marks & Spencer, the Co-op and Asda.

The Middle East conflict and its impact on energy prices also ate into discretionary household expenditure during the first half of this year.

"Given the strength of our performance in the previous summer, we're actually pretty encouraged by the performance we've seen," said Roberts.

"We're going into Christmas with a strong plan and real momentum," he said, adding consumers were waiting to see the impact on them of the government's budget statement on October 28.

In July, Sainsbury's agreed to sell its Argos general merchandise business to Swift Partners for £120 million ($161 million).

For the first half, Sainsbury's posted continuing underlying operating profit of £525 million, up 3.6%, reflecting volume growth in food and cost savings.

It now forecasts full-year to end-February 2027 underlying operating profit of between £1.025 billion and £1.065 billion, up from previous guidance, adjusted for the disposal of Argos, of £965 million to £1.065 billion.

($1 = 0.7461 pounds)

(Reporting by James Davey; Editing by Sarah Young and Emelia Sithole-Matarise)