November 9, 2017 / 7:21 AM / a year ago

Consumer squeeze and competition curb Sainsbury's sales growth

LONDON (Reuters) - British supermarket group Sainsbury’s (SBRY.L) reported slower quarterly sales growth and a drop in first-half profit on Thursday, as weak consumer spending and intense competition took their toll.

FILE PHOTO - Shopping baskets are displayed at a Sainsbury's store in London, Britain April 30, 2016. Photograph taken April 30, 2016. REUTERS/Neil Hall/File Photo

Sainsbury’s and major rivals - market leader Tesco (TSCO.L), Asda (WMT.N) and Morrisons (MRW.L) - are grappling with the rapid growth of discounters Aldi and Lidl.

They are also having to cope with more expensive food imports due to a weaker pound since Britain voted to leave the European Union, while consumer spending is under pressure from rising inflation, subdued wage growth and economic uncertainty.

On Wednesday, Marks & Spencer (MKS.L) said it faced “stronger headwinds” in food and was slowing openings of its upmarket convenience stores.

Shares in Sainsbury’s, which acquired electricals and toys retailer Argos last year, were down 2.4 percent at 1026 GMT after it said growth in like-for-like sales, excluding fuel, slowed to 0.6 percent in its second quarter to Sept. 23, from 2.3 percent in the previous quarter.

Shares in Tesco, Morrisons and M&S were down 0.4, 1.5, and 3.3 percent respectively.

Analysts at Bernstein said Sainsbury’s second quarter outcome was 1.3 percentage points below consensus expectations. “The fall in like-for-like sales growth is coming from both grocery and general merchandise,” they said.


Sainsbury’s Chief Executive Mike Coupe said the outcome partly reflected a programme to close around 100 Argos concessions in Homebase DIY stores and a “fairly soggy summer”.

“If you look at the more recent market data, we are at least holding our own, if not performing better than the overall market,” he told reporters.

“We’re pleased with the overall half (like-for-like sales up 1.6 percent) ... you have to look at it in the round,” he said.

However, he said consumers were currently “very value conscious.”

Sainsbury’s first-half underlying pretax profit fell 9 percent to 251 million pounds - ahead of analysts’ average forecast of 241 million pounds but down from 277 million in the same period last year.

The outcome reflected efforts to keep prices low despite rising inflation, higher staff wages and inclusion of the seasonally loss-making Argos business in the results, partly offset by synergies and cost savings.

Sainsbury’s forecast full-year profit in line with analysts’ average forecast of 572 million pounds, down from 581 million in 2016-17 - a fourth straight decline.

It said it would have 165 Argos stores in its supermarkets by Christmas and was on track to deliver 160 million pounds of synergy benefits from the acquisition six months ahead of schedule.

Sainsbury’s, which last month said it was seeking to cut up to 2,000 jobs, has exceeded its cost savings target and will achieve 540 million pounds over three years ending 2017-18. At least a further 500 million pounds is targeted over three years from 2018-19.

“While the market remains competitive, we are well placed to navigate the external environment,” said Coupe, adding he was confident about Sainsbury’s trading offer for Christmas.

Editing by Keith Weir and Mark Potter

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