Sainsbury's reaping the rewards of Argos takeover as it begins to see growth

Sainsbury's is expected to report a growth in sales and profits with its Argos business

Sainsbury’s takeover of Argos looks to be paying off as the supermarket prepares to announce a jump in sales and profits for the catalogue retailer.

According to reports in the Telegraph, the supermarket is expected to report a 7% jump in underlying pre-tax profits for the year from £548m to around £584m in 2016, coupled with a 2% increase in sales totalling £26.4bn.

The profits margin will be dented by a one-off charge of around £62m to cover additional costs related to the Argos takeover and a 0.6% slip in like-for-like sales at its shops.

Much of the profits were generated in the second half of the year when shoppers typically purchase more toys and electronics ahead of Christmas.

While Sainsbury's has enjoyed a record £1bn of sales over Christmas, its grocery division underwhelmed amid pressure from a resurgence in rivals Tesco and Morrisons.

Dave McCarthy, head of Consumer retail Europe at HSBC, told the Telegraph that the supermarket was " structurally challenged" and lacked the " scale and growth of Tesco".

He added: "It has more scale than Morrisons but less growth and a weaker balance sheet. As for Argos, we are concerned about its exposure to exchange rates, long-term shifts in consumer behaviour and the risks associated with its integration.”

The supermarket opened 50 Argos concessions following the takeover last year and has announced plans to launch a further 250 within the next three years.

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