J Sainsbury plc (LON:SBRY) was unable to deliver Christmas cheer to investors as sales declined in the third quarter amid fierce competition in the grocery market.
The supermarket group, which has agreed to take over Walmart Inc’s (NYSE:WMT) Asda, said total retail sales, excluding fuel, fell 0.4% in the 15 weeks to January 5. On a like-for-like basis, retail sales, excluding fuel, dropped 1.1%.
That compares to total sales growth of 1.2% and like-for-like sales growth of 1.1% the same period a year ago.
The poor performance reflected weaker sales in general merchandise and clothing, which fell 2.3% and 0.2%, respectively. Grocery sales growth also slowed to 0.4% from 2.3% last year. Grocery sales were led higher by a 6.0% increase in online and a 3.0% rise in convenience stores.
Argos hit by tough retail market
Sainsbury’s said its Argos business, which includes general merchandise, had a strong Christmas but sales over the quarter were hurt by subdued consumer spending and the company’s decision to reduce promotional activity during Black Friday.
The retailer opened 23 Argos stores inside Sainsbury’s supermarkets during the period, bringing the total to 274. Six of the 23 stores replaced an existing standalone Argos store.
READ: Sainsbury's worst performer of big four supermarkets over Christmas, industry data shows
Argos stores inside Sainsbury’s supermarkets that have been open for more than a year saw like-for-like sales increase more than 10% in the quarter.
The Sainsbury’s bank division saw customer numbers rise 9% over the period with mortgage balances above £1.2bn.
Chief executive Mike Coupe said “Christmas came late this year” with customers doing their big shop for the festive season later than usual.
He added: "Retail markets are highly competitive and very promotional and the consumer outlook continues to be uncertain. However, we are well placed to navigate the external environment and remain focused on delivering our strategy.”
In a bid to boost grocery sales, Sainsbury’s launched new Christmas food items, cut prices and improved customer services. The company has also introduced more vegetarian and vegan items to meet demand for meat-free alternatives.
Sainsbury's-Asda merger
To offset weaker sales, Sainsbury’s has been trying to cut costs and said it is on track to achieve £200mln of savings this year. The supermarket chain expects its proposed merger with Asda to deliver further cost synergies.
The UK’s Competition and Markets Authority is expected to announce the outcome of its investigation into the merger in February.
Neil Wilson, chief market analyst at Markets.com, Sainsbury's numbers for the third quarter were "truly woeful".
"Competition is fierce, but it’s not just discounters like Aldi and Lidl parking their tanks on Sainsbury’s lawn," he said.
"Sainsbury’s did well when Tesco was facing problems and Morrisons was a long way short of where it is now. Both of those have undergone impressive turnarounds – the question is whether Sainsbury’s faces up to the fact that in core grocery at least it too needs to turn the ship around.
"At present it’s putting all it eggs in one basket with the planned Asda merger, but if that fails where does it leave the business?"