11th Jun 2014 09:08
LONDON (Alliance News) - J Sainsbury PLC reported Wednesday another drop in like-for-like sales, its second consecutive quarterly decline, after nine years of unbroken sales growth.
The UK's third-largest supermarket chain by market share posted a 1.1% decline in like-for-like retail sales including VAT but excluding fuel for the 12 weeks to June 7 from the same period a year earlier. Including fuel, like-for-like retail sales fell 2.4%.
In his final call with journalists before stepping down next month, Chief Executive Justin King said the company expects customer spending to remain cautious, and as a result Sainsbury's will continue to invest in keeping its offering competitive and being "toe-to-toe" with its rivals.
"We are playing our part in this pricing skirmish. We are toe to toe with our competitors, and we have never been more competitive than we are today," King said, adding: "Our brand match is also making sure we stay competitive on brands."
Sainsbury's said it is still expecting like-for-like retail sales to end the year in positive territory, as it expects like-for-like sales to be similar to last year, when it grew only 0.2% for the year as a whole including contributions from new space, and was flat excluding.
Total group sales in the 12 week period just ended declined by 1% excluding fuel, and 0.3% including fuel. Sainsbury's said new retail space added 2.1% to total sales during the period.
The company said it was up against some stronger comparatives in the quarter, when it benefited from the horse meat scandal that undermined its rivals, but said the main reason for the decline is the soft UK grocery sector.
"Throughout the quarter we have continued to invest in reducing prices and improving quality, increasing the value of our offer," King said in the company's statement.
Tesco PLC and Wm Morrison Supermarkets PLC continue to compete on price, having already launched huge investments in price cuts this year. Sainsbury's meanwhile says it will remain competitive using its brand-match programme, which gives customers vouchers to cover any difference in prices of branded goods they paid for at Sainsbury's that were cheaper at Tesco.
Despite the sales fall, the company's stock was the biggest gainer on the FTSE 100 in morning trading Wednesday, up 1.9% at 336.00 pence.
Analysts were forecasting a decline in like-for-like sales in the period of between 1% and 1.5%, but still believe that Sainsbury's is outperforming and holding up better than its more price-focused rivals.
"Against a backdrop of demonstrably weak industry sales, Sainsbury talked of the weakest quarter in a decade," said Shore Capital analyst Clive Black in a research note Wednesday. "The outcome is relatively sound when compared to Morrisons and Tesco."
Sainsbury's said its strengths and the driving forces behind the business remain the same: capturing the importance of local convenience stores and online grocery shopping, at a time when consumers continue to move away from large out-of-town supermarkets, preferring the ease of shopping from home or at smaller local stores. Combined, its online and convenience store businesses now make up 15% of total sales for the group.
"We remain confident that our clear strategy and differentiated offer will allow us to continue to outperform our supermarket peers through the remainder of the year," said King.
Sainsburys has weathered the competitive trading environment better than its rivals, but there is no doubt the strain is beginning to show.
According to the latest grocery market share figures from Kantar Worldpanel last week, Tesco, Sainsbury's and Morrisons all reported market share declines in the 12 weeks ending May 25, while Wal-Mart Stores-owned Asda was the only large grocer to grow its share year-on-year during the period.
Sainsbury's till rolls rose 0.9%, but market share still declined to 16.5%, from 16.7%, Kantar said. Tesco's till rolls declined 3.1%, while its market share dropped to 29.0%, from 30.5%, it said.
Sainsbury's said Wednesday that sales from its convenience store business grew by over 18% in the quarter from the previous year, materially out-stripping the company's large outlets which are seeing declining sales. During the quarter, the grocer opened its 200th convenience store in London. Groceries online also posted good growth, increasing 10% year-on-year in the period.
During the quarter it opened 27 new convenience stores and refurbished a further 12 convenience stores. It also opened one supermarket extension, and refurbished three supermarkets.
"We remain on track to deliver around two new convenience stores per week and around 750,000 square feet of new space this year," the company said, highlighting its plans to open around 100 convenience stores in the year ahead.
Last week, Sainsbury's said it will launch a new click-and-collect groceries service from London Underground station car parks. It said it will initially launch from seven London stations - including Leytonstone, Loughton and Oakwood - and will begin this summer.
Sainsbury's general merchandise and clothing businesses continued to grow strongly in the quarter, it said, with clothing in particular performing well, delivering double-digit like-for-like sales growth.
The supermarket chain also recently announced it will take its clothing brand online, and will trial a new online clothing offer for its Tu clothing brand in August. It said it will offer its Tu womenswear, menswear and childrenswear clothing on a bespoke website, with customers able to choose between click-and-collect and home delivery services. Sainsbury?s began selling clothing in 1994 and last year more than 7.5 million customers bought its Tu clothing, generating sales of approximately GBP750 million.
Commercial Director Mike Coupe will take over as chief executive next month, when King steps down after 10 years at the helm. Coupe told journalists Wednesday he is confident the supermarket chain can continue to maintain its price position and grow the parts of the business which have the biggest upside potential, such as convenience stores and its online offering.
"Mr. Coupe has to contend with what are aforementioned demonstrably weaker markets for major British supermarkets, reflecting changes to consumer behaviour, new competitor dynamics, increasing food eaten out of the home and channel shift," said Shore Capital's Black.
"New space is not going to be the source of oxygen for the top-line that it once was for Sainsbury, and with easier inflation and perhaps some gross-margin pressure, particularly if Tesco UK has to reset, then it may be the operating channels that receive greater attention as sector costs increasingly appear to have to be cut," he added.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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