Sainsbury's warns outlook 'challenging' as sales fall

Sainsbury's has warned the outlook for the rest of the financial year will "remain challenging" after reporting a drop in like-for-like sales over the key Christmas trading period.

The supermarket chain said sales at stores open at least a year fell 1.7% excluding fuel in the 14 weeks to 3 January.

Total sales fell 0.4%.

However, Sainsbury's said the week before Christmas was a "record", with 29.5 million customer transactions.

The latest figures were also an improvement on the previous quarter, when like-for-like sales excluding fuel fell 2.8%, and were better than analysts' expectations of a drop in like-for-like sales of 2.5-4.4%.

Sainsbury's shares, which have fallen 36% over the past year, rose 1.3% following the trading update.

Local shopping

Sainsbury's chief executive Mike Coupe said he expected like-for-like sales in the fourth quarter to be similar to its first half performance due to "the uncertainty in the trading environment, food price deflation and price reductions".

"Broadly we sold the same amount of stuff last year, just at lower prices," he told BBC Radio 5 live.

He said the sales figures also reflected the trend of more frequent and local shopping, with its convenience business growing 16% in the quarter.

Christmas Eve marked Sainsbury's biggest trading day in its convenience stores, with sales totalling £8m.

The third quarter was also its biggest Christmas for online sales, with the chain delivering 110,000 orders in the three days to 23 December.

Its clothing business also performed well, with sales up 10% year-on-year.

Christmas jumpers were the stand-out performer, with sales doubling compared with last year and a snowman jumper proving its most popular design.

Price wars

The figures come a day after Sainsbury's said it would cut the prices of 1,000 of its most popular products as part of a £150m programme announced in November.

Rival Asda announced similar plans on Tuesday, saying it would invest £300m in the first quarter of 2015 on cutting prices.

The plans mark the latest salvo in a bitter price war as the "big four" supermarkets, which also include Tesco and Morrisons, battle for customers.

A combination of increased competition from discounters Aldi and Lidl and customers shopping around for bargains mean none of the big four are expected to report an increase in like-for-like sales over the Christmas period.

Attention will now shift to Tesco and Marks and Spencer, which will both issue trading updates for the Christmas period on Thursday.

Phil Dorrell, director of retail consultancy Retail Remedy, said the third quarter numbers highlighted "the challenges facing Sainsbury's and the rest of the big four".

"Focusing overly on price could damage the reputation for quality Sainsbury's has built up over the years. It can't afford to cut corners on quality, it's not in a position to make many workforce savings, and it's no Asda, so either the suppliers have got to play ball or margins are going to be squeezed."