Booming sales, rising profits and a bullish forecast were not enough for Sainsbury’s to win over City sceptics this week, as it faced a fall in GM sales and the prospect of tough comparatives.

Updating the market on its annual results for the year to 2 March, Sainsbury’s offered plenty to like about its core grocery operations.

A 9.4% jump in grocery sales was driven by increased market share, thanks largely to volume growth. This was helped by a reduction in inflation, particularly in the second half of the financial year, and heavy investment in price.

Underpinned by the launch of its major Nectar Prices initiative, Sainsbury’s delivered volume growth across all major categories and own brand participation increased by 93 basis points.

However, overall retail sales (excluding fuel) were up 6.8% as grocery growth was dragged back by weaker GM performance.

GM sales were up 1.2% like for like, but down 0.5% overall due to the closure of Argos in the Republic of Ireland and a decline in seasonal and kids, home and furniture sales due to the impact of a cooler, wetter summer on seasonal sales.

That dip meant retail underlying operating margins declined, but underlying retail profit was still up 4.3% to £966m.

Underlying profit before tax was up 1.6% to £701m, while statutory profit before tax fell by 15.3% to £277m due to one-off charges related to the restructuring of its financial services division.

Sainsbury’s expects retail underlying profits to grow by another 5%-10% in its current financial year to £1.01bn-£1.06bn. The rise will be driven by continued grocery momentum, growth in Nectar profit contribution and a “resilient” Argos profit performance amid cost-saving delivery, it said.

The supermarket warned of tougher grocery comparatives this year, but it expected to continue to generate volume growth, helped by more normal summer weather.

However, it warned financial services could fall to a loss amid a withdrawal from loss-making banking products.Global Data noted that general merchandise was particularly weak in the fourth quarter, dropping by 5.6% while clothing was down 6.4% for the full year.

“Sainsbury’s is yet to find the winning formula to secure sustained sales momentum [at Argos], as customers continue to prioritise spend on essential goods.“

”With food sales growth now receding, Sainsbury’s Next Level strategy proposition must be rolled out swiftly. The grocer has positioned Argos as a core pillar to drive non-essential category growth by 2027, it must ensure that promises to improve range and convenience are followed through before the end of this new financial year.”

Sainsbury’s shares fell back another 3.1% on Thursday morning to 259.8p, despite the strong core grocery performance. They are down by more than 13% so far in 2024.

However, broker Jefferies said City caution was overdone. The results “should be a small first step to showing the market its overly cautious stance misunderstands operational reality”, it said.

Shore Capital concurred: “Sainsbury’s is a fundamentally improving and higher quality firm. The equity has the potential to re-rate.