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Sainsbury's (LON:SBRY) blamed lower prices and discount competition for another quarterly sales fall, although the figures were better than expected.
The British supermarket chain said trading was still taking a hit from strong levels of food price deflation and "a highly competitive pricing backdrop".
Total retail sales in the first quarter fell 0.6% excluding fuel and by 2.3% including fuel. Like-for-like retail sales dropped 2.1% excluding fuel and by 3.7% including fuel.
The like-for-like figures excluding fuel were at the lower end of a range of 2%-2.5% predicted by the City.
But it is still the sixth quarterly sales decline in a row for Sainsbury's, which along with other established UK grocers is battling cut-price competition from the likes of Aldi and Lidl.
The falls have come despite efforts by the chain to compete by cutting more than 1,100 prices as part of a £150mln pricing strategy.
Sainsbury's, which has pledged to improve the quality of 3,000 own-brand products, has introduced new products in several areas such as produce and speciality bread.
It has also improved summer ranges with products such as BBQ Smoked Chilli Pulled Pork and BBQ Sweet Chilli Chicken Thighs.
Chief executive Mike Coupe said the company was on track to achieve all its planned quality improvements.
Clothing sales increased by more than 5% and Sainsbury's was planning to roll out its online clothing range nationwide during the summer.
It has opened 20 grocery Click & Collect sites and remains on track to have 100 sites by the end of 2015. Groceries online had a record week in the quarter with 256,000 orders.
Coupe said: "Despite the challenging market conditions, we are confident that we are building on strong foundations and making good progress with our strategy."
Short-sellers have targeted Sainsbury's and rivals such as Morrisons and Tesco as they have struggled against the discounters, a report on Tuesday from financial data firm Markit showed.
Average demand from short-sellers to borrow shares in the big grocers surged to new highs over the last few weeks, hitting a record 11.02%. Short interest in Sainsbury's and Morrisons topped 15%.
Augustin Eden at Accendo Markets said those with short positions would be taking profits.
But he added: "This ‘short squeeze’, seemingly also affecting Tesco (LON:TSCO) this morning, shouldn’t signal a full-blown sector rebound – after all, the supermarket war continues to rage in the background."
Shore Capital said it was keeping its 'sell' advice on the stock. The broker's Clive Black and Darren Shirley said in a note: "Whilst we applaud the focus of Sainsbury's management, keeping store standards tight and extolling points of difference where they are real, we believe the mix of deflation, gross margin investment and scope for market share loss mean that the downgrade cycle could be reasonably deep and sustained."