Sainsbury’s expects tough market to persist as sales fall again

28 Sep, 2016 12:23 pm

LONDON – Sainsbury’s, Britain’s second biggest supermarket, on Wednesday reported another drop in quarterly underlying sales and cautioned that it did not expect a change to competitive market conditions any time soon.

The firm, which earlier this month completed its 1.4 billion pounds ($1.82 billion) takeover of Argos-owner Home Retail HOME.L, said sales at stores open over a year fell 1.1 percent, excluding fuel, in the 16 weeks to Sept. 24, its fiscal second quarter.

That was very slightly better than analysts’ average forecast of down 1.2 percent and compared to a first quarter fall of 0.8 percent.

The firm said the decline was driven by food price deflation but highlighted like-for-like transaction growth across all channels and total volume growth.

“We expect the market to remain competitive and the effect of the devaluation of sterling remains unclear,” said Chief Executive Mike Coupe.

“However, Sainsbury’s is well positioned to navigate the changing marketplace and we are confident that our strategy will enable us to continue to outperform our major peers.”

With profits squeezed by the growth of German discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL] Britain’s “big four” supermarkets – market leader Tesco (TSCO.L), Sainsbury’s, Asda WMT.L and Morrisons (MRW.L) – are all fighting back with price cuts and service improvements.

Sainsbury’s has both lowered and simplified its prices, reducing the number of promotions and removing most “multi-buy” deals. It has also worked to improve the quality and range of its own-brand food and non-food products.

While the firm has proved more resilient to the discounters than others it has still reported two straight years of profit decline and analysts forecast a third for the 2016-17 year.

Prior to Wednesday’s update analysts were on average forecasting a 2016-17 underlying pretax profit of 517 million pounds (pre Argos), down from 587 million pounds in 2015-16.

Shares in Sainsbury’s, down 9 percent over the last six months, closed Tuesday at 250.8 pence, valuing the business at 5.5 billion pounds.

Sainsbury’s also issued a trading update on Argos, a general merchandise retailer. In its second quarter to Aug. 27, Argos achieved total sales growth of 3.0 percent and like-for-like sales growth of 2.3 percent. -Reuters

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