- LFL retail sales ex-fuel down 1.1%, in line
- Industry growth "slowest in a decade"
- Customer spending to remain cautious, King says
J Sainsbury gave a cautious outlook for consumer trends on Wednesday as it reported a 1.1% fall in like-for-like (LFL) retail sales excluding fuel in its first quarter, although this was not as bad as some analysts had feared.
Chief Executive Justin King, who is to step down in July after a decade at the helm, blamed the fall on lower food price inflation and reduced fuel prices for the group's second straight quarterly drop in sales.
However, analysts gave a positive reaction to the results early on. Shore Capital in particular had forecast LFL sales to fall as much as 1.5% in the first quarter.
The performance was also an improvement from the 3.1% slump registered in the fourth quarter of the previous financial year, Sainsbury's first fall in sales in nine years.
King said that falling prices are a "welcome respite" to customers, but consumer spending remains cautious, "leading to industry growth in the quarter being the slowest in a decade".
A recent wave of price cuts at the Big Four grocery chains - an attempt to win back market share from the rapidly-growing discounters such as Aldi and Lidl - has begun to eat away at retailer's top lines, as evidenced by the 3.7% sales plunge in UK LFL sales at rival Tesco announced last week.
Sainsbury's, the UK's second-largest supermarket chain behind Tesco, actually saw total retail sales for 12 weeks to June 7th grow by 1% excluding fuel, as the company hailed "continued growth in a challenging market".
It said that its own brand remains a "key point of difference" with other retailers, with sales from its Taste the Difference range up nearly 10%. General merchandise and clothing also grew strongly, with clothing in particular delivering double-digit LFL growth.
King said: "We expect customer spending to remain cautious and we will continue to invest to keep our offer competitive to help customers balance their household budget.
"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."
Sainsbury's fares better than rivals
Shore Capital analysts Clive Black and Darren Shirley said that by Sainsbury's own standards, the 1.1% fall in LFL sales is a "disappointing outcome".
"However, against a backdrop of demonstrably weak industry sales - Sainsbury talked of the weakest quarter in a decade - the outcome is relatively sound when compared to Morrison's 7.1% fall and Tesco UK's 4% fall."
They kept a 'hold' rating on the stock on Wednesday, saying that it offers a "relatively stable investment proposition", compared with its other two UK-listed rivals Tesco and Wm Morrison which are both rated as 'sells'.
The stock was trading around 2-3% higher shortly after markets opened.