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Sainsbury’s sales fall as customers cut back spending

Sales at UK supermarket chain J Sainsbury fell over the past quarter as the squeeze on household incomes intensified and customers cut back particularly on big-ticket items such as technology and furniture at its Argos chain.

Same-store sales, excluding fuel, were down 4 percent in the 16 weeks to June 25 compared with the same period a year ago.

Analysts had expected, on average, a decline of more than 5 percent, and Sainsbury’s share price was 1.6 percent higher in morning trade on Tuesday.

Grocery sales fell 2.4 percent in the period, partly reflecting strong comparative figures from last year when much of the UK was in lockdown for five weeks of the 16-week period.

However, the impact in general merchandise was greater. Sales at Argos, which Sainsbury’s acquired in 2016, were down 10.5 percent year on year in the 16 weeks to June 25, a fifth consecutive quarter of decline.

Chief executive Simon Roberts said the figures were as expected and that the pace of decline at Argos had moderated later in the quarter. “We’re controlling costs well, we’re managing margin and we’re giving value for customers,” he said.

Spending on technology and furniture through Argos had fallen, he added, reflecting the tightening squeeze on customers’ incomes.

There was also evidence of customers trading down on groceries, with rising sales of economy own-label and product lines where prices are matched to those of discounter Aldi.

“There’s a lot of pressure in the system at the moment, commodity prices are higher, fuel is higher, labor, fertilizers. . . this pressure has been in the system for a while, progressively building up,” said Roberts.

He added that Sainsbury’s was raising individual item prices by less than the market, and that the effect of trading down to cheaper lines meant the price of the average basket was rising even less.

Bernstein analyst William Woods said trading was more resilient than many had expected but that it had still underperformed market leader Tesco, which reported a 1.5 percent decline in same-store sales for its first quarter.

As was the case with smaller rival Wm Morrison, the surge in petrol and diesel prices helped sales. Including fuel, same-store sales were up 2.9 percent in the period.

Roberts said Sainsbury’s was “watching this issue very closely” but that its fuel pricing remained “really competitive”. Supermarkets have been accused of using the Ukraine war as cover to increase profit margins on fuel.

Sainsbury’s is also facing pressure from investors to become a real living wage employer, but Roberts said the company could not support a resolution being tabled at its annual meeting on Thursday.

“I started my career on the shop floor [Marks and Spencer] in 1990 when I was earning £8,000 a year. I’ve never forgotten how hard it is to work there,” he said, pointing out that the company had brought forward its annual pay review in response to the escalating cost of living and increased staff discounts.

“But we should make decisions on what we pay our colleagues, what prices we charge customers and what we pay to our shareholders,” he added, rather than delegating that decision to “an unaccountable third party”.

Real living wage employers have to sign up to the annual increases calculated by the Living Wage Foundation and ensure that any third-party contractors working in their premises are also paid the real living wage.

The group also said that Kevin Byrne, finance director, would retire from the company in March 2023 and be replaced by Bláthnaid Bergin, currently commercial and retail finance director.

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