Sainsbury’s upbeat despite sales cooling

Supermarket chain Sainsbury’s has seen a slowdown in sales growth, but insisted it has the “right strategy” in place as it pushes ahead with its £12 billion Asda tie-up.

The Argos owner reported a 0.2 per cent rise in like-for-like sales for its first quarter to the end of June, down from growth of 0.9 per cent in the previous three months.

It said grocery sales rose 0.5 per cent, while general merchandise grew by 1.7 per cent and clothing lifted 0.8 per cent in a “very challenging market”.

While it was left nursing a slowdown in overall sales growth, the group said sales by volume had improved thanks to recent price cuts.

Its sales performance was also better than feared, with the group expected to reveal a sales dip in the quarter.

Group chief executive Mike Coupe said: “The headline numbers reflect the level of price reductions we have made in key areas like fresh meat, fruit and vegetables since March.

“The market remains competitive; however, we have the right strategy in place, and our proposal to combine Sainsbury’s and Asda will create a dynamic new player in UK retail, with the scale to give customers more of what they want today and create a more resilient and adaptable business for the future.”

The group said it had secured a £3.5bn funding package “on attractive terms” for its mega-merger with Big Four rival Asda.

It plans to deliver £160 million of savings from the deal by March 2019, if it is approved by Britain’s competition watchdog. The Competition and Markets Authority (CMA) is currently in the “pre-notification” phase of its investigation, which entails gathering information before a formal inquiry can begin.

A merger between the duo, the UK’s number two and three grocers, would create a supermarket titan bigger than Tesco, with revenues of about £51bn and a network of 2,800 Sainsbury’s, Asda and Argos stores.

They have pledged to cut prices on everyday products by around 10 per cent after the deal.

But fears have been expressed that suppliers could get squeezed as a result, with the tie-up giving the merged entity increased buying power.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “We know that consumers were in fine fettle in May, as the royal wedding and some good weather lifted spirits, and that’s helped Sainsbury’s to achieve a positive period of trading.

“The June sunshine and the start of the World Cup no doubt also provided a boost to Sainsbury’s coffers, as shoppers came home with TVs and barbecues.

“Conditions remain challenging though, and while the top line is just about growing, Sainsbury’s efforts to lower prices mean that may not entirely feed through into profits.”

He added: “The performance of the general merchandise division will be particularly pleasing to Coupe, returning to growth after three quarters of declining sales. On that front, the integration of Argos into the Sainsbury’s store estate continues apace, and the prospect of opening outlets within Asda supermarkets looks like a tantalising prospect.”