The supermarket group, which was forced to abandon its proposed £7bn with Asda after the UK Competition and Markets Authority blocked the deal, said like-for-like sales, excluding fuel, dropped 1.6% in the 16 weeks to June 29.
That compares to a 0.2% rise in the same period a year ago when the royal wedding of Prince Harry and Meghan Markle, a UK heatwave and the FIFA World Cup boosted sales. The decline was also steeper than the 0.9% dip posted in the fourth quarter.
Total retail sales, excluding fuel, dropped 1.2% in the first quarter of this year with grocery sales down 0.5%, general merchandise sales from Argos down 3.1% and clothing sales down 4.5%.
Sainsbury’s said the particularly poor sales in clothing and general merchandise reflected the impact of cooler weather on seasonal ranges.
Including fuel, retail sales edged down 0.6% and like-for-like sales decreased 1.0%.
Despite the sales decline, Sainsbury’s saw improved market share for its premium Taste the Difference food range, consumer electronics, technology, furniture, toys and clothing. It said it was now the fifth biggest clothing retailer by volume with market share gains in its Tu range.
Looking ahead, Sainsbury’s warned that retail markets remain “highly competitive and promotional and the consumer outlook continues to be uncertain”.
Like the rest of the UK’s four biggest supermarkets – including Tesco PLC (LON:TSCO), Wm Morrison Supermarkets PLC (LON:MRW) and Wal-Mart Inc (NYSE:WMT) owned Asda – Sainsbury’s has been losing market share to German discounters Aldi and Lidl.
The fierce competition from the discounters has forced the big four to take action to try to lure customers back through the door.
Sainsbury’s has been trying to turn around its performance by reducing prices on more than 1,000 grocery items, improving its customer service and introducing new product ranges such as vegan and vegetarian options. The company has also overhauled its beauty range and plans to roll out new products to 100 supermarkets this year.
The group has been investing in its technology with self-scan now available at 148 supermarkets and self service at more than 206 Argos stores.
"We continue to adapt our business to changing shopping habits and made good progress in a challenging market,” said Sainsbury's chief executive Mark Coupe.
Shares rose 1.6% to 202.8p in morning trading.
Sainsbury's management needs strategy rethink, says analyst
Michael Hewson, chief market anlayst at CMC Markets, said Sainsbury's needs to outline a clear vision of how it plans to move the business forward following the collapsed Asda merger.
"The failure to push the deal through was certainly a blow to CEO Mike Coupe, and while he has every reason to feel aggrieved by the actions of the regulator, who it would appear don’t understand how competition works, he needs to move the business on, particularly since the share price has fallen to thirty year lows, raising the prospect that further declines could see it run the risk of being relegated from the FTSE100 for the first time in its history," he said.
He added that new chairman, Martin Scicluna, is likely to get a "baptism of fire" from disgruntled shareholders at Thursday's annual general meeting over over his decision to back Coupe as chief executive. The group could also face some tough questions over the levels of pay given the recent poor performance, he said.