London: British grocer J Sainsbury reported a pick-up in quarterly sales growth, boosted by a warm April, a royal wedding and expansion into non-food markets as it warned of tough and challenging times ahead.
Chief executive Justin King said on Wednesday the market was very competitive, reflecting the poor economic backdrop, and expected this to be the case throughout the year, with higher fuel costs putting pressure on consumers’ disposable income.
Britain’s third-biggest supermarket group behind Tesco and Wal-Mart’s Asda said sales at stores open over a year rose 1.9%, excluding fuel but including VAT sales tax, in the 12 weeks to 11 June, its fiscal first quarter.
That was up from 1% growth in the previous quarter and narrowly missed a forecast for 2.1%in a poll. It was also better than the 1% growth reported by arch rival Tesco for the 13 weeks to 28 May.
King added its customers had switched to its own-branded products to save money, but was happy with a consensus 2.3% like-for-like forecast for the year, with inflationary price rises to come and a late boost from Christmas.
He said that 60% of the group’s overall sales growth in the quarter came from fuel, reiterating the message from Tesco that the biggest issues facing UK shoppers were higher fuel prices and related utility bills.
“We have delivered a solid sales performance, in line with our expectations in spite of the continued tough consumer environment,” King added.
Sainsbury’s shares rose 0.19% to 327.3 pence by 12.50pm in a slightly lower overall market, after underperforming the STOXX Europe 600 retail index by 13% this year.
Analysts said the supermarket industry had seen a return to more typical conditions in May and June after the April boost as rising prices and government austerity measures hit shoppers.
“The market is now well aware that April trading was strong at least in headline growth terms. But the key message from both Tesco yesterday and likely Sainsbury today is that May has reverted to the norm of calendar Q1,” said analyst Matthew Truman at brokers JP Morgan Cazenove.
Sainsbury has been growing sales faster than most rivals for several quarters, helped by strength in the more affluent south of England as well as an expansion into online and convenience shopping and non-food ranges like clothing.
But weak consumer spending, high inflation and government cutbacks to slash the budget deficit have raised doubts over the strength of economic recovery, with non-food discretionary purchases often hardest hit.
Chief financial officer John Rodgers said the group would be interested in a “handful” of Iceland Foods stores if the portfolio was broken up as part of the auction of a 67% stake being sold on behalf of failed Icelandic bank Landsbanki.