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Sainsbury's hit by weak general merchandise, clothing sales

Sainsbury's hit by weak general merchandise, clothing sales
FILE PHOTO: Shoppers walk past the first 'till-free' Sainsbury's store in London, Britain, May 1, 2019. REUTERS/Toby Melville/File Photo -
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Toby Melville(Reuters)
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By James Davey

LONDON (Reuters) – British supermarket group Sainsbury’s reported a third straight quarter of declining underlying sales, hit by weak demand for clothing and general merchandise, and cautioned its markets remained highly competitive and promotional.

After its 7.3 billion pound takeover of rival Asda was blocked by Britain’s competition regulator in April, and with its shares down 37% over the last year, Sainsbury’s Chief Executive Mike Coupe is under pressure to show the group can prosper on its own.

Coupe said in May that Sainsbury’s would evolve, rather than dramatically change, to meet changing customer habits such as more frequent shopping trips, the demand for more convenience and more shopping online.

He plans to improve 400 stores, cut prices on daily essentials and invest in online and technology.

He has reduced prices on over 1,000 own brand products including dairy, meat, fish, poultry and fresh fruit and vegetables – adding to the competitive pressure in the industry.

Data on Wednesday showed British shop prices in June fell for the first time since October.

Sainsbury’s said its like-for-like sales, excluding fuel, fell 1.6% in the 16 weeks to June 29, its fiscal first quarter.

That compared with analysts’ forecasts for a fall of 1.1% to 2% and a drop of 0.9% in the previous quarter.

“Retail markets remain highly competitive and promotional and the consumer outlook continues to be uncertain,” Sainsbury’s said.

The group said that while total grocery sales fell 0.5%, general merchandise sales dropped 3.1% and clothing sales were down 4.5%.

Despite the declines, Sainsbury’s said its premium “Taste the Difference” own-brand food range gained market share, as did key general merchandise categories and clothing, where it is now Britain’s fifth largest retailer by volume.

Recent official data and updates from peers, including market leader Tesco, had already outlined a difficult backdrop for retailers in the period, reflecting ongoing political and economic uncertainty and a tough comparison with the same quarter last year when Britain enjoyed record hot weather and major events including a royal wedding and the men’s soccer World Cup.

Prior to Wednesday’s update, analysts were forecasting a fall in Sainsbury’s profit for its 2019-20 financial year. The pretax profit consensus estimate was 632 million pounds ($794 million), down from the 635 million pounds made in 2018-19.

Coupe, who was paid 3.9 million pounds in 2018-19, will face investors on Thursday at the group’s annual shareholder meeting.

Shares in Sainsbury’s closed on Tuesday at 199.5 pence, valuing the business at 4.43 billion pounds.

(Reporting by James Davey; Editing by Kate Holton and Mark Potter)

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