17th Mar 2015 11:50
LONDON (Alliance News) - J Sainsbury PLC Tuesday reported a drop in sales in the fourth quarter of its financial year, despite price reductions and a volume increase across the business.
The UK's third-largest supermarket chain by market share behind Tesco PLC and Wal-Mart Stores Inc-owned Asda said total retail sales were down 0.3% excluding fuel in the 10 weeks to March 14, and down 2.7% including fuel. Like-for-like sales were down 1.9% excluding fuel, and down 3.9% including fuel for the fourth quarter.
Still, the drop in like-for-like sales wasn't as severe as the 2.3% decline analysts had expected and Sainsbury's shares were up 1.3% at 272.00 pence Tuesday morning, amongst the best-performing stocks in the FTSE 100. The figure was also better than that reported by rival Wm Morrison Supermarkets PLC, and in line with latest figures from larger rivals Tesco and Asda.
Sainsbury's sales drop came despite a price reduction in over 1,100 products following a GBP150 million price investment in November, although the supermarket says it has seen volume growth across the food business and an average uplift of over 3% on the price-reduced products.
During the quarter, the grocer's online business saw order numbers increase by 14%, with a record week of 245,000 orders.
"We expect the market to remain challenging for the foreseeable future. Food deflation is likely to persist for the rest of this calendar year, and competitive pressures on price will continue," said Chief Executive Mike Coupe in a statement.
"However, we believe that the great value and quality of our products, combined with a strong focus on developing our multi-channel offer, will enable us to outperform our supermarket peers," he added.
Morrisons had reported a drop in like-for-like sales of 2.6% excluding fuel in the three months to February 1, while Tesco reported a drop in like-for-like sales of 0.3% excluding fuel in the six weeks to January 3, and a 2.9% drop for the 19 week period ended January 3. Asda had reported a 2.6% decline in like-for-like sales in the 12 weeks to January 4, although it wasn't clear if that figure excludes fuel.
Despite the "significant drag" that food price deflation has had on overall sales performance, Sainsbury's Coupe told reporters that there are "green shoots" for the business.
He noted that it was the first time the supermarket had seen volume growth in the last few years, and that there was an underlying improvement in customer transactions. He described it as "very early signs, but nevertheless a positive step in the right direction".
Sainsbury's said its convenience stores business grew 14% in the quarter, as did online order numbers. It opened a further 23 convenience stores.
However, Cantor Fitzgerald analyst Mike Dennis and analysts at Shore Capital all think Tesco remains a real threat for Sainsbury's ambitions. Dennis notes Tesco has invested more than GBP300 million in pricing in the first quarter of 2015 and in some staple categories there remains "irrational" pricing.
Cantor says the Sainsbury's share price has underperformed in the food retail sector by 9.5% year to-date, reflecting the risk to Sainsbury's from management changes at Tesco, as well as continuing industry price deflation. The broker says the on-going pressure on Sainsbury's dividend also reflects the threat that Tesco will reset pricing lower and reduce costs to recover some of its lost market share.
Cantor retains its Hold recommendation on Sainsbury's and its price target at 275 pence, while Shore retains its Sell recommendation and its price target at 269p.
By Karolina Kaminska; [email protected]
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