LONDON (Reuters) - Sainsbury's, Britain's No. 2 supermarket group that is battling to take over No. 3 Asda, reported a worse-than-expected fall in underlying sales in the key Christmas quarter, hurt by poor demand for general merchandise.
The group said on Wednesday like-for-like sales, excluding fuel, fell 1.1 percent in the 15 weeks to Jan. 5, its fiscal third quarter. That compares with analysts' average forecast of a 0.2 percent fall and a second quarter rise of 1.0 percent.
"Retail markets are highly competitive and very promotional and the consumer outlook continues to be uncertain," said Chief Executive Mike Coupe.
The group said its total retail sales fell 0.4 percent in the quarter. That reflected a 0.4 percent rise in grocery sales which was more than offset by a 2.3 percent fall in general merchandise sales.
It blamed the shortfall in general goods, which includes its Argos business, on cautious customer spending and its decision to reduce promotional activity across Black Friday in November.
If market leader Tesco meets analysts' consensus forecasts when it reports third quarter and Christmas trading on Thursday, Sainsbury's will be the weakest organic performance of the big listed UK food retailers.
On Tuesday No. 4 Morrisons reported a 0.6 percent rise in retail like-for-like sales for the nine weeks to Jan. 6 while industry data showed discounters Aldi [ALDIEI.UL] and Lidl won market share from all of the big four in the Christmas quarter.
(Reporting by James Davey; editing by Kate Holton)