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Argos looks a good buy for Sainsbury’s digital ambitions, clothing, general merchandise outperform m

Sainsbury’s said Tuesday its general merchandise – and clothing in particular – “outperformed the UK market” in Q1, while the purchase of Argos has given the supermarket giant an major online lift in its bid to become “a leading digital retailer”.

Clothing sales, mostly via its core Tu range, jumped over 7% in for the 16-week quarter to July 1, “reflecting strong growth both in stores and online,” it noted. General merchandise sales also grew 1% on an underlying basis.

That helped the UK’s second-biggest supermarket chain record 2.3% growth in same-store sales, excluding fuel, for the quarter. Total retail sales, excluding fuel, rose 2.7%. Core grocery sales rose 3% and transaction growth lifted 1.9% at Sainsbury’s.

The retailer also said it remains “on track” to achieve £145m of cost savings in the current financial year, as part of a three-year £500m savings programme.

Although its GM sales growth looked modest on paper, it still outperformed the market. Given it closed 78 Argos in Homebase and 84 Habitat in Homebase concessions over the last year, it was a sterling performance.

Argos, it said, continues to “perform well”, growing market share, with strong growth in mobile, audio and tech categories and “good growth” in core electricals and toys. Online and mobile sales continue to rise at Argos, with online sales up 10%.

“We saw strong growth of Argos Fast Track delivery (up 36%) and collection (up 64%), which were particularly popular during the hot weather, when customers wanted products like paddling pools and fans on the day,” it said.

Sainsbury’s opened 36 Argos Digital stores in its supermarkets, bringing the total to 75. Meanwhile, 17 of the 36 stores replaced an existing Argos store, taking the total number of replacement stores to 20. It also opened three Mini Habitat stores, bringing the total to 11.

The retailer said it remains on track to open around 135 Argos Digital stores within its supermarkets by the end of 2017/18, which will take the total to 175.

“We have 212 digital collection points in our supermarkets, where customers can collect DPD, eBay and Tu clothing, 142 of which are enabled for Argos orders. We are trialling six collection points in convenience stores,” it said, adding: “We remain confident of delivering £160m of ebitda synergies from the Argos acquisition by March 2019.”