LONDON BRIEFING: Sainsbury's Benefits From Online Sales, Good Weather

(Alliance News) - J Sainsbury said Wednesday it saw "strong" grocery and Argos sales in its first quarter. Grocery sales rose 11% year on year, with general merchandise - including Argos sales growing 11% - advanced 7.2%.

The supermarket chain also noted its digital sales more than doubled in the quarter.

Holding back group sales, however, was a 27% drop in clothing sales.

As a result, total retail sales were 8.5% higher, with like-for-like sales growing 8.2% - both excluding fuel.

Chief Executive Simon Roberts said: "Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks, SmartShop now accounts for more than half of sales in some supermarkets and Argos sales were strong while operating as an online-only business for almost twelve weeks.

"Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre Convenience stores were all significantly down year on year as a result of lockdown."

Looking ahead, Sainsbury's said it will remain "cautious" but expects a further weakening of consumer spending.

"It remains impossible to predict the full nature, extent and duration of the impact of Covid-19 on sales and costs. Our base case scenario continues to underpin an expectation of broadly unchanged group underlying profit before tax for the full year," the supermarket added.

Sainsbury's shares were up 1.8% early Wednesday, bucking a slightly lower FTSE 100.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: down 0.1% at 6,164.21

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Hang Seng: Hong Kong market closed for local holiday.

Nikkei 225: closed down 0.8% at 22,121.73

DJIA: closed up 217.08 points, 0.9%, at 25,812.88

S&P 500: closed up 1.5% at 3,100.29

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GBP: soft at USD1.2378 (USD1.2384)

EUR: down at USD1.1230 (USD1.1246)

Gold: up at USD1,784.60 per ounce (USD1,782.27)

Oil (Brent): flat at USD41.64 a barrel (USD41.66)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Wednesday's Key Economic Events still to come

0930 BST UK CIPS-Markit manufacturing purchasing managers' index

0955 CEST Germany unemployment

0955 CEST Germany manufacturing PMI

1000 CEST Germany Ifo economic forecast summer report

1000 CEST EU eurozone manufacturing PMI

0700 EDT US MBA weekly mortgage applications survey

0730 EDT US Challenger job-cut report

0815 EDT US ADP national employment report

0945 EDT US manufacturing PMI

1000 EDT US ISM manufacturing report on business

1030 EDT US EIA weekly petroleum status report

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UK house price growth "ground to a halt" in June, lender Nationwide said, with an annual contraction in prices for the first time since 2012. House prices slipped 0.1% in June on a year before, with prices down 1.4% month-on-month. This is the first time that annual house price growth has been in negative territory since December 2012, Nationwide noted. In May, prices had risen 1.8% annually but had fallen 1.7% on a monthly basis. "It is unsurprising that annual house price growth has stalled, given the magnitude of the shock to the economy as a result of the pandemic. Economic output fell by an unprecedented 25% over the course of March and April – almost four times more than during the entire financial crisis," Nationwide Chief Economist Robert Gardner said. "Housing market activity also slowed sharply as a result of lockdown measures implemented to control the spread of the virus. While latest data from HMRC showed a slight pick-up in residential property transactions from April's low, in May they were still 50% lower than the same month in 2019."

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Ireland's manufacturing sector returned to expansion in June with a record one-month gain in an index of activity, as production and new work increased for the first time since February after lockdown measures were eased. The headline AIB Ireland manufacturing purchasing managers' index - a composite indicator of manufacturing performance - rose to 51.0 in June from 39.2 in May, IHS Markit reported. This is above the neutral figure of 50.0 and reflects a sharp improvement in the sector. During June, production and new work rose for the first time since February, as several firms noted that factories had started to reopen as government lockdown measures to combat the spread of Covid-19 began to be lifted. Total new orders rose by the fastest rise in exports since April 2019. However, employment still declined, albeit at the slowest rate in four months as many plants continued to operate at well below full capacity.

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BROKER RATING CHANGES

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GOLDMAN SACHS INITIATES IMPERIAL BRANDS WITH 'NEUTRAL' - TARGET 1700 PENCE

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GOLDMAN SACS REINITIATES BRITISH AMERICAN TOBACCO WITH 'BUY' - PRICE TARGET 4000 PENCE

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RBC CUTS VIRGIN MONEY UK TO 'SECTOR PERFORM' ('OUTPERFORM') - TARGET 100 PENCE

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PANMURE CUTS HAMMERSON TO 'SELL' ('HOLD') - TARGET 76 PENCE

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COMPANIES - FTSE 100

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Medical devices maker Smith & Nephew said it expects a sharp drop in revenue in the second quarter. The company expects second-quarter underlying revenue to plunge 29%. But, Smith & Nephew noted, this is in line with internal expectations. Smith & Nephew said it was "encouraged" by its improving performance as the quarter progress - with underlying revenue declines of 47% in April, 27% in May, and around 12% in June. "Performance was correlated strongly with the easing of lockdown restrictions and resumption of elective surgeries. Nevertheless, there continues to be significant uncertainty and geographical variation," the company said. Smith & Nephew added: "The impact of the Covid-19 pandemic has been most pronounced on our Orthopaedic Reconstruction, Sports Medicine and ENT businesses, driven by lower levels of elective surgery in the quarter. Our Advanced Wound Management and Trauma businesses have been more resilient." As a result Smith & Nephew continues to expect its first-half trading margin will be "substantially" down on the prior year.

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COMPANIES - FTSE 250

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Aerospace and defence contractor Babcock International has appointed former Cobham CEO David Lockwood as its own chief executive. Lockwood will replace outgoing Babcock CEO Archie Bethel, who earlier this year announced his intention to retire. Lockwood will join Babcock's board on August 17 then become CEO on September 14. Prior to running Cobham, he was CEO of Laird.

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Liontrust Asset Management has agreed to buy the UK investment business of Architas, a wholly owned subsidiary of French insurer AXA, growing Liontrust's assets under management and administration by GBP5.6 billion. The deal, worth GBP75 million, will be paid for using a placing of up to 5.1 million new shares and existing company cash resources, Liontrust said. Chief Executive John Ions said: "The Architas UK investment business is an important strategic acquisition for us to meet the growing demand for investment solutions from advisers and their clients over the next few years. It builds on and complements our existing investment solutions of multi-asset portfolios, Sustainable Managed and equity income funds." Liontrust's total AuMA after the deal will be about GBP25 billion.

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Travel food kiosk operator SSP Group said the Covid-19 pandemic has had an "unprecedented" hit to the travel sector, so it is reorganising its UK business. Sales in April and May were about 95% below last year. During June, sales recovered "slightly" and are now running at about 90% below last year, with stronger performances in Continental Europe and North America reflecting the gradual easing of lockdowns in these regions offset by the UK and Rest of World, where sales remain below this level. "The reality is that passenger numbers still remain at very low levels, a reflection of the extent and duration of the current restrictions in place. In the Rail sector, which represents the majority of SSP's UK operations, passenger numbers remain about 85% lower YOY and the UK Air sector has to date been largely closed," SSP said. SSP expects only about 20% of its UK units will have opened by the autumn. "We have therefore come to the very difficult conclusion that we will need to simplify and reshape our UK business, and we are now starting a collective consultation on a proposed reorganisation. If the pace of the recovery continues at the current level, this could lead to up to about 5,000 roles becoming redundant from within the head office and UK operations. Clearly, these decisions are very difficult, and our priority is to conduct this process fairly and to support those affected." SSP expects this reorganisation to cost between GBP8 million to GBP10 million.

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Wednesday's Shareholder Meetings

Downing Strategic Micro-Cap Investment Trust

Third Point Offshore Investors

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By Tom Waite; thomaslwaite@alliancenews.com

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