Sainsbury Sales Slow More Than Anticipated on Fuel

(Corrects newspaper’s name in last paragraph.)

J Sainsbury Plc (SBRY), the U.K.’s third- largest supermarket owner, fell the most in almost two years in London trading after reporting sales that slowed more than analysts anticipated as higher fuel costs weighed on consumers.

Revenue at stores open at least a year, including value- added tax and excluding gasoline sales, rose 1 percent in the 10 weeks through March 19, the London-based retailer said today in a statement. That was less than the 3.6 percent increase in the third quarter and missed the 2.1 percent median estimate of seven analysts surveyed by Bloomberg.

Sainsbury Chief Executive Officer Justin King today said the company has promotions on more than 30 percent of its items, and that discounts have been “at an all-time high now for the best part of a year.” British grocers have been increasing discounts to record levels on everyday items such as detergents and cheese to lure shoppers contending with inflation, which rose to the fastest pace in more than two years in February.

“The results are a bit disappointing,” said Caroline Gulliver, an analyst at Execution Noble, with a ‘hold’ rating on the stock. It shows that growth is coming from fuel inflation not volume, she added. Including fuel, sales at Sainsbury rose 4.2 percent.

Photographer: Chris Ratcliffe/Bloomberg

A customer browses goods at a Sainsbury's supermarket in London. Close

A customer browses goods at a Sainsbury's supermarket in London.

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Photographer: Chris Ratcliffe/Bloomberg

A customer browses goods at a Sainsbury's supermarket in London.

Sainsbury is also extending its own lines with a womenswear collection by television celebrity Gok Wan and adding convenience stores and non-food space to drive profit as the market faces “subdued” growth, according to researcher Kantar Worldpanel.

Share Slump

Sainsbury fell as much as 21.3 pence, or 6 percent, to 333 pence and were at 334 pence at 8:33 a.m. in London trading. That’s the biggest intraday decline since June, 2009. The stock has declined 11 percent this year, while Tesco Plc (TSCO), Britain’s biggest retailer, has dropped 13 percent.

The grocer’s market share rose to 16.5 percent in the three months through Feb. 20, according to Kantar, with sales growth running ahead of the market and its largest competitors Tesco and Wal-Mart Stores Inc.’s Asda chain.

Fuel price inflation of 16 percent is having a “significant impact,” on weekly budgets, the retailer said in the statement. U.K. retail sales gained 1.1 percent in February from a year earlier, the slowest pace in 10 months, according to the British Retail Consortium, driven by a decline in non-food sales such as furniture and electronics.

Photographer: Chris Ratcliffe/Bloomberg

Sainsbury Chief Executive Officer Justin King. Close

Sainsbury Chief Executive Officer Justin King.

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Photographer: Chris Ratcliffe/Bloomberg

Sainsbury Chief Executive Officer Justin King.

Nectar Cards

Customers are managing inflation by tapping into Sainsbury’s nectar card loyalty plan and items such as the grocer’s offer for five meals for a family of four for 20 pounds ($32), Chief Executive Officer Justin King told Francine Lacqua on Bloomberg Television’s “On The Move” today.

“Customers are really reining in their spending but we’re pleased with our performance because it’s a good beat to our competition,” King said. “The market since Christmas has been very subdued in the level of growth. The customer has no good reason, not withstanding what they might hear in the budget today, to believe things will get very much better,” he added.

King said he was “very happy” with analysts’ expectations of profit before tax of about 660 million pounds ($1.08 billion) for the year.

Separately, the Daily Mail reported today that Sainsbury shareholder the Qatar Investment Authority has approached the grocer with a plan to support Sainsbury if it made a bid for Marks & Spencer Group Plc. King declined to comment on the report on a conference call today. Marks & Spencer spokeswoman Clare Wilkes declined to comment on the report.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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