J Sainsbury Plc, 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.
The shares dropped as much as 6.7 percent after the London-based retailer said revenue at stores open at least a year rose 1 percent in the 10 weeks through March 19, including value-added tax and excluding gasoline sales. 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.
Chief Executive Officer Justin King said today that Sainsbury 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.
“These figures are starting to show the impact of the perfect storm on the sector,” said Dave McCarthy, an analyst at Evolution Securities in London who has a “reduce” recommendation on Sainsbury. “Consumers are under pressure, rising inflation and excess capacity are resulting in poor sales. The read through is bad news for the industry.”
Sainsbury shares fell as much as 23.8 pence to 330.5 pence and were down 5.7 percent at 334.2 pence at 11:19 a.m. in London. That’s the biggest intraday decline since June, 2009. Shares of Tesco Plc, Britain’s biggest retailer, dropped as much as 3.7 percent, while smaller competitor William Morrison Supermarkets Plc declined as much as 2.6 percent.
Sainsbury’s sales show that growth is mostly coming from fuel inflation rather than volume, said Caroline Gulliver, an analyst at Execution Noble with a “hold” rating on the stock. Including fuel, sales at Sainsbury rose 4.2 percent.
Sainsbury is extending its own lines with a women’s wear collection by TV 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.
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.
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.
Customers are managing inflation by tapping into Sainsbury’s Nectar loyalty program 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, notwithstanding what they might hear in the budget today, to believe things will get very much better.”
Chancellor of the Exchequer George Osborne will address lawmakers at 12:30 p.m. He will increase the level at which British workers begin paying tax and offer support for first-time homebuyers, a person with knowledge of the plans said.
King said he’s “very happy” with pretax profit estimates 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 also declined to comment on the report.