Sainsbury’s bounced back to bumper first-half profits on Thursday, but the rebound and continued strong grocery performance was not enough to reassure investor concerns over increasing costs and tumbling Argos sales.

Total group sales were up by 5.9% to £15.7bn in the six months to 18 September, with headline sales boosted by a 63% rebound in fuel sales. Retail sales (including VAT, including fuel) increased by 6%. However, excluding fuel they were up by just 0.2% in the first half, having fallen back 1.7% in the second quarter.

The second-quarter sales drop came despite demand remaining high. Grocery sales were up 0.8% year on year in the first half and second quarter, while they have jumped by 9.1% on a two-year basis. However, general merchandise performance was far weaker – declining 5.8% in the first half and by 11.4% in the second quarter.

General merchandise within Sainsbury’s supermarkets was still up 2.4% in the half year, but its Argos sales slumped 7.3% and by 12% in the second quarter.

Sainsbury’s blamed the annualisation of a spike in 2020 demand for home office and home entertainment products during the first lockdown, when many competitor stores were closed, as pointing to unseasonal weather this year.

The stuttering top line growth did not impact profitability, with underlying profit before tax up 23% to £371m and statutory profit before tax jumping back to £541m from a first-half loss of £137m last year and just £9m in 2019/20 as the supermarket benefitted from significantly lower restructuring and impairment costs the boost of £181m of exceptional income from settling legal disputes.

Sainsbury’s conceded it faced “labour and supply chain challenges” but insisted its cost-saving programme along with its scale, logistics operations and supplier relationships “put us in a good position as we head into Christmas”.

However, investors were less convinced of the bullish sentiment heading into the vital Christmas trading period, sending shares down 2.5% by Thursday lunchtime to 281.7p, having fallen by 5% in early trading.

Bernstein cautioned the supermarket was seeing weaker demand than its peers and suggested the jump in profitability was flattered by a decline in direct Covid costs, noting: “Retail operating profit was up 50% when adjusting for business rates relief, but we’re cautious about how much of that was driven by the ‘save to invest’ programme versus Covid costs coming off.”

AJ Bell added: “While the results were broadly reassuring investors still found themselves spooked by warnings on supply chain and staffing issues… That the supply chain problems are most heavily affecting Argos, Sainsbury’s star turn through the course of the pandemic, is perhaps part of the problem.”

The supermarket’s shares are around 18% down on August highs of 342p but remain up 35% year on year.

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