Sainsbury's warns conditions remain challenging as sales struggle

Sainsbury's has warned that market conditions are likely to remain challenging for the foreseeable future, after the retailer revealed on Wednesday (8 June) its sales had fallen in the first quarter of its financial year.

In the three months to 4 June, the FTSE 100-listed retailer saw total retail sales, excluding fuel, grow 0.3% year-on-year. On a like-for-like basis, meanwhile, sales declined 0.8% in the first quarter.

The figure was better than the 1.7% drop analysts had forecast, but fell short of the 0.1% increase recorded in the previous three months.

Including fuel sales, meanwhile, total sales declined 0.1% compared with the same period in 2015 and fell 1% on a like-for-like basis.

Group chief executive Mike Coupe said the group was well positioned, adding the general merchandise and clothing division had performed well with good sales growth across both businesses. Sainsbury's Bank had also delivered a positive performance over the first three months of the company's financial year and Coupe highlighted it as "a significant opportunity for long-term growth."

However, he warned the trading environment remained challenging, with deflationary pressure on food prices set to continue for the foreseeable future. "Market conditions remain challenging," he said.

"Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future. However, we are confident that our strategy to be a trusted multi-channel, multi-product and services retailer is delivering and will enable us to continue to outperform our major peers."

The retailer, which is in the process of acquiring Argos-owner Home Retail, is the latest of the UK's Big Four supermarket chains to see its sales drop as discount rivals Lidl and Aldi continue to gain market share.

According to a Kantar report published on 1 June, sales at the Big Four supermarkets declined for the period of 12 weeks ending 22 May 2016, with sales at Sainsbury's declining by 1.2% and Tesco reporting a 1% drop. Sales at Morrisons declined by 2.1% while Asda suffered a 5.1% tumble.