British supermarket group Sainsbury's has raised its full-year profit forecast by at least 9% following stronger than expected food sales over Christmas, even though it fell short of its stellar 2020 festive performance.
UK supermarkets faced tough comparisons against Christmas 2020 when a lockdown meant food and drink sales boomed.
While restrictions for Christmas 2021 were less severe, supermarkets still benefited from consumer nervousness over the spread of the Omicron variant which kept them away from bars and restaurants.
The group is now forecasting a full-year 2021-22 underlying profit before tax of "at least" £720m compared with previous outlook of "at least" £660m and the £356m made in 2020-21.
Sainsbury's said group like-for-like sales, excluding fuel, fell 4.5% year-on-year in its third quarter to January 8, having fallen 1.4% in the second quarter.
The UK's second biggest supermarket group behind Tesco said grocery sales fell 1.1% in the third quarter year-on-year but were up 6.6% against the same time in 2019-20, before the pandemic impacted trading.
"I am really pleased with how we delivered for customers this Christmas. More people ate at home and our significant investment in value, innovation and service led to market share growth," said CEO Simon Roberts.
Sainsbury's said general merchandise sales fell 16% year-on-year, reflecting a strong performance last year, limited availability in key product areas and a focus on profitable sales, including fewer promotions.
Clothing sales fell 2.7%.
The group said its profit upgrade reflected investment and higher operating cost inflation being offset by cost savings and stronger-than-expected grocery volumes, driven in part by increased in-home consumption.
Its Argos general merchandise business also continued to benefit from stronger margins supported by cost savings, while profit expectations in its financial services business were running ahead of analysts' consensus with bad debts lower than expected and lending volumes starting to recover.
Shares in Sainsbury's have risen 18% over the last year, buoyed by bid speculation.