Gloomy sales news for Sainsbury's as consumers tighten their belts

SAINSBURY's sharply undershot fourth-quarter sales forecasts yesterday, as the supermarket giant admitted consumers had never been more depressed amid soaring inflationary pressures and job insecurity.

The disappointing figures wiped 5.4 per cent off Sainsbury's share price and also disturbed the wider market as the group's gloomy comments were seen as suggesting the downturn in consumer spending will continue throughout 2011.

Group chief executive Justin Kingsaid: "Their (shoppers'] outlook is as downbeat as it has ever been."

The retailer noted that sales at stores open more than a year rose just 1 per cent, excluding fuel but including VAT, in the ten weeks to 19 March. That was a slowdown from 3.6 per cent growth in the previous three months and below a City consensus forecast of 2.4 per cent.

Analysts said the sharp fall in growth at the UK's third-biggest supermarket group was the biggest sign on the high street yet of the impact of nationwide redundancies and surging inflation, which has hit 4.4 per cent.

Clive Black, retail analyst at Shore Capital, said he planned to cut his 2011-12 profit forecast for the company to about 710 million from 739m.

He said: "Sainsbury's has done more to confirm the magnitude of the deceleration in consumer activity in the UK today than any other recent update."

King did not attempt to massage the under-performance against City expectations, saying: "We would have expected to grow faster in this quarter than we have. It's clearly a reflection of quite a significant step-down by customers."

Previously, Sainsbury's had been growing sales faster than most rivals for several quarters, helped by its skew towards the affluent south of England, although it has nearly 50 stores in Scotland.

Including the tailwind from the group's strong opening programme, total sales for the fourth quarter lifted 6.8 per cent, while like-for-like sales growth including fuel was 4.2 per cent.

King said non-food sales grew at three times the rate of food in the fourth quarter, while online sales rose 20 per cent. He said petrol prices were up 16 per cent on the year, costing an average customer an extra 10 a week.

However, he added that he felt comfortable with analysts' average 2010-11 profit forecast of 660m. He declined to comment on market rumours that 26 per cent shareholder Qatar Holding wanted the group to merge with Marks & Spencer. Qatar has also declined to comment.

Meanwhile, Sainsbury's announced plans to recruit an extra 500 staff to serve at its food counters and cafs over the next year.The chain is also opening six food colleges to provide training in areas such as knife and food preparation skills, product knowledge and customer service.

The supermarket giant expects that more than 8,500 staff a year will spend at least a day training at the colleges, which will be situated in existing stores in Edinburgh, Bradford, Oldbury, St Albans, Calcot, near Reading and Hempstead Valley in Kent.

King said the firm was attracting a record 21 million customers to its stores each week, up one million on a year ago. Sainsbury's shares closed down 19p last night at 335.3p.