Shares in J Sainsbury plc (LON:SBRY) fell on Wednesday as a controversial crackdown on special offers such as sandwich meal deals failed to boost its fortunes.
The stock fell 7.7p, or 3.1%, to 243.1p as the chain unveiled lower sales and forecast continuing competition and uncertainty from the plunging pound.
Hargreaves Lansdown senior analyst Laith Khalaf said competition from discounters was still bearing down on prices while the weak pound could force up Sainsbury's costs.
"The falling pound will start to take a toll as currency hedges and supply agreements fall out of the equation, and Sainsbury’s and its peers will have to stock their shelves at higher prices.
"Given the highly competitive price environment, it’s going to be a tough choice between passing on that additional cost to customers, and taking a hit to margins."
The supermarket said total retail sales in the 16 weeks to September 24 dropped 0.4%.
Like-for-like retail sales fell 1.1% excluding fuel and were down 0.5% including fuel.
Sainsbury's has been replacing multi-buys and other special offers with an "everyday low price" strategy of cutting prices on a range of basic goods.
Chief executive Mike Coupe insisted the company had improved the quality of its sandwiches despite making many of them more expensive by removing meal deal offers.
"We have removed the vast majority of multi-buy promotions and we continue to reduce our promotional activity in favour of lower, regular prices," he said.
"This quarter, we maintained our highest-ever customer satisfaction scores."
He added: "We expect the market to remain competitive and the effect of the devaluation of sterling remains unclear.
“However, Sainsbury's is well positioned to navigate the changing marketplace and we are confident that our strategy will enable us to continue to outperform our major peers."
Sainsbury's completed the acquisition of Argos owner Home Retail Group plc (LON:HOME) on September 2.
In its second quarter to August 27, Argos achieved total sales growth of 3% and 2.3% like-for-like sales growth.
Clive Black at Shore Capital said: "With a clearly competitive landscape and persistent deflation, albeit this may be easing not least through sterling devaluation, the prevailing trading environment is tough, and as Coupe outlines, it is set to remain so.
"As such, we feel the need to be reasonably cautious on our profit expectations for Sainsbury’s core business in the near-term; that is we could be shaving our trading profit estimates for the supermarket business.
"We make this point highlighting that we see the gradual recovery of Tesco UK as a cause for real concern for Sainsbury too, in terms of the scope for greater direct competitor attrition, something the business has not had to content with since the late ‘noughties’."
AJ Bell investment director Russ Mould said: "There is therefore a lot riding on the acquisition of Argos owner Home Retail to accelerate its multi-product, multi-channel strategy and there appears to be some progress in rolling out Argos Digital stores and digital collection points.
"However, acquisitions are notoriously difficult to integrate successfully so the jury remains out on whether that is the right strategy.
"Management can’t afford to take its eye of the ball of the core grocery business in such a competitive market.”