LONDON (Reuters) - Sainsbury’s (SBRY.L) sales fell for a third straight quarter as demand for clothes and general merchandise cooled, and the British supermarket group warned investors against expecting an upturn any time soon with Brexit looming.
After the company’s 7.3 billion pound ($9.2 billion) bid for rival Asda was blocked by Britain’s competition regulator, and with its shares down 37% over the last year, CEO Mike Coupe is under pressure to show Sainsbury’s can prosper on its own.
But he indicated on Wednesday that in a highly competitive and promotional market, and with the consumer outlook uncertain, investors would have to be patient for a return to sales growth.
“I’m not going to make myself a hostage to fortune by predicting the future,” he told reporters. “There are lots of things - we talked about Brexit as an example - that could significantly disrupt our business and our industry.”
Echoing recent comments from market leader Tesco (TSCO.L), Coupe said the Oct. 31 departure date for Britain to leave the European Union - pushed back from the original deadline of March 29 - was “not far off the worst day that you could possibly choose” due to the proximity of Halloween, Black Friday and Christmas, warning of a possible impact on fresh food and toy imports if trade flows are disrupted.
Coupe, who was paid 3.9 million pounds in 2018-19, will face investors on Thursday at the group’s annual shareholder meeting.
Sainsbury’s is cutting prices on daily essentials while investing in stores, technology and online services to meet the challenges of a fast-changing industry, where customers are shopping more frequently, demanding more convenience, buying more online and also flocking to discount stores.
So far prices have been cut on over 1,000 own brand products including dairy, meat, fish, poultry and fresh fruit and vegetables - adding to the competitive pressure in the sector.
Data on Wednesday showed British shop prices in June fell for the first time since October.
“We think we’ve done a pretty good job in our added value food ranges, where we have a challenge is in commodities. We’ve started to address that issue and actually we’re pleased with the progress we’ve made,” said Coupe.
He pointed to “market leading” prices on items such as a 250g pack of strawberries cut from 1.50 pound to 1 pound, and a 640g pack of chicken breast fillets cut to 3.60 pounds from 4.30 pounds, which have boosted sales volumes.
Sainsbury’s said its like-for-like sales, excluding fuel, fell 1.6% in the 16 weeks to June 29, its fiscal first quarter. That compared with analysts’ forecasts for a fall of 1.1% to 2% and a drop of 0.9% in the previous quarter.
While total grocery sales fell 0.5%, general merchandise sales dropped 3.1% and clothing sales were down 4.5%.
Shares in Sainsbury’s reversed initial losses to trade up in early morning trade.
“There might be some relief that things aren’t getting worse in grocery,” said Bernstein analyst Bruno Monteyne.
Despite the sales declines, Sainsbury’s said its premium “Taste the Difference” own-brand food range gained market share, as did clothing and key general merchandise categories such as consumer electronics, technology, furniture and toys.
Recent official data and updates from peers, including Tesco, had already painted a gloomy picture for retailers, reflecting political and economic uncertainty and a tough comparison with the same quarter last year when Britain enjoyed a heatwave and major events including a royal wedding and the men’s soccer World Cup.
Sainsbury’s finance chief Kevin O’Byrne said he was comfortable about analysts’ consensus profit forecast for the 2019-20 financial year, which currently stands at 632 million pounds, just below the 635 million made in 2018-19.
Reporting by James Davey; Editing by Kate Holton and Mark Potter