Sainsbury Sales Fall in First Quarter Since Asda Deal Demise

(Bloomberg) -- J Sainsbury Plc's sales fell in the first quarter since its planned acquisition of Walmart Inc.'s Asda collapsed, underlining the need for a revamp of its U.K. supermarkets.

Comparable retail sales excluding fuel dropped 1.6%, with general merchandise, clothing and groceries all declining, the retailer said Wednesday. The shares rose as much as 2.4% in London after an early dip, though they've lost more than one-fifth of their value this year.

Sainsbury's weakness in a troubled U.K. retail market contrasts with the relative strength of larger rival Tesco Plc, which has wielded its buying power to keep discounters Lidl and Aldi at bay.

In May, after U.K. antitrust authorities blocked its deal for Asda, Sainsbury pledged new investments aimed at improving its stores, cutting prices and expanding its online business. The grocer said it will revamp 400 supermarkets this year, including technology upgrades, and improve its offer of beauty products.

“Although it has been a tough quarter in terms of the headline sales numbers, we continue to gain share in clothing and general merchandising categories,” Chief Executive Officer Mike Coupe said on a call. “This is a very competitive market. It's early days and there's lots of work to be done and progress to be made.”

Tough Comparison

Sainsbury joined other retailers in blaming bad weather after hot temperatures, the soccer World Cup and a royal wedding boosted sales for most U.K. grocers a year earlier. The company said it sold fewer paddling pools, barbecues and outdoor toys in the three months through June as a result.

“Expectations were skewed to the downside ahead of the quarter as it was well-flagged that 1Q 18/19 was a tough comparable,” Morgan Stanley analyst Maria-Laura Adurno said in a note.

Coupe warned that the Oct. 31 deadline for Britain to leave the European Union is “about as bad as it gets” if there is a no-deal outcome. It's a key period for stocking goods for Black Friday sales and Christmas shopping, limiting available warehouse space for building stock to mitigate product shortages due to any border delays that might result, he said.

--With assistance from Lisa Pham.

To contact the reporter on this story: Ellen Milligan in London at emilligan11@bloomberg.net

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net

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