SAINSBURY’S has hiked its profit outlook after a strong Christmas despite supply chain challenges that hit toy and technology sales.

The supermarket giant said in its third quarter trading update to January 8 said overall sales dropped in the period but highlighted that sales of grocery products grew over the key weeks around Christmas.

The retailer reported that sales in its general merchandise business, which includes Argos, dropped by 16 per cent over the quarter.

However, it said cost reductions at Argos, driven by the group’s decision to shut 420 of the brand’s branches, helped strengthen its profit margins.

Sainsbury’s said “general merchandise sales declines reflect the impacts of both weak demand and limited supply in some key categories and our strategy to focus on profitable sales”.

“The technology, gaming and toy markets all declined by double digits,” it said. “This reflects tough comparatives against last year’s lockdown and also the ongoing impact of global supply chain challenges on product availability.

“We delivered strong food availability for Christmas, despite many challenges, benefiting from our scale, strong supplier relationships and the adaptability of our supply chain and logistics operations.”

HeraldScotland:

It told shareholders on Tuesday that the grocery sales volumes and cost savings across the business have offset the impact of “higher operating cost inflation” and investment into the business.

The retailer, which has around 100 outlets in Scotland, reported that total sales, excluding fuel, dropped by 5.3 per cent for its latest quarter against the same period last year, but were 1.4% ahead of pre-pandemic levels.

Grocery trading dipped by 1.1% against the same period last year, but was 6.6% higher than pre-pandemic levels.

It said grocery sales increased by 0.1% year-on-year over the six weeks to January 8.

Sainsbury’s said it is now expected to post a pre-tax profit of at least £720 million for the year to March.

READ MORE: Co-op secures M8 site east of Glasgow for £12m facility

Simon Roberts, chief executive of Sainsbury’s, said: “The backdrop was challenging and our teams worked hard throughout the year to make sure we had all of the products everyone wanted.

“Our suppliers did a great job in challenging conditions throughout the quarter and I thank them for all their support for our business.”

HeraldScotland: Source: London Stock Exchange.Source: London Stock Exchange.

He added: “More people ate at home and our significant investment in value, innovation and service led to market share growth.

“At the same time, we are pleased to increase profit guidance for the full year.

“The backdrop was challenging and our teams worked hard throughout the year to make sure we had all of the products everyone wanted.”

READ MORE: Lidl hails record numbers of festive shoppers

Mr Roberts said the retailer has reported increased absences in recent weeks due to the spread of the Omicron variant, but absence rates were still “only half” of the peak rates the company saw during the pandemic.

He added that Sainsbury’s will continue to pay all staff during isolation due to Covid-19, following Ikea’s decision to cut sick pay for unvaccinated staff affected by the virus.

Zoe Gillespie, investment manager at Brewin Dolphin, said: “UK supermarkets faced tough comparisons against Christmas 2020, when lockdown caused a boom in food and drink sales, but the spread of the Omicron variant saw consumers stay away from bars and restaurants last year as well.

“Sainsbury’s is continuing to deliver strong results on the back of the range of measures it took to improve business performance.

“Encouragingly, profit guidance has been lifted, cost savings are helping to stave off the effects of increased inflation, and debt reduction is ahead of schedule. Even the supermarket’s banking operation is seeing a turnaround in fortunes.

“While the spectre of inflation remains, Sainsbury’s has the ability to manage this better than many other businesses.”

Shares in Sainsbury’s closed 3.1% up at 288p.