Sainsbury a victim of high expectations

Reaction to the first quarter trading update from Sainsbury was muted as the supermarket failed to live up to high expectations.

Total sales for the 12 weeks to June 9th were up 3.6% on the corresponding period of last year, or up 3.8% excluding fuel, while like-for-like (LFL) sales were up 1.4%.

The LFL sales growth compares very favourably with the performance over a similar period by sector leader Tesco, which on Monday announced a 1.5% decline in LFL sales (excluding VAT and petrol), although to be fair to Tesco. Sainsbury's numbers include the run-up to the extended Diamond Jubilee week-end while Tesco's reporting period stopped just short of the nation's big bun-fest.

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Sainsbury saw 24m customer transactions in the week of the jubilee, which is about 2m more than it would expect in the first week of June.

Unfortunately for Sainsbury, the market was expecting something a little bit extra in terms of like-for-like sales growth. Forecasts ranged from LFL sales growth of 1.5% to 2.2%.

According to Sainsbury's Chief Executive, Justin King, sales growth was in line with management's expectations, in which case they probably could have done a better job of tipping the wink to analysts following the firm.

Non-food lines, which is not an area on which Sainsbury has focused as much as some of its rivals, are growing faster than food lines, with King claiming the group is gaining market share in its core general merchandise and clothing categories, with the trading period seeing the group's strongest ever sales week on clothing.

One area where Sainsbury is in step with its rivals is the increasing focus on convenience stores. Having driven many High Street shops out of business with their edge-of-town hypermarkets offering ample car parking facilities, the supermarkets are moving back into town centres with smaller convenience outlets.

Sainsbury said its convenience stores achieved year-on-year sales growth of 16%. The group also fired a shot across the bows of online grocer Ocado, which is targeting a similar mid-market constituency to Sainsbury, as King boasted of growth in excess of 20% in online sales.

"Looking forward, we expect the market to remain competitive. Universal appeal, supported by market leading own label ranges, Brand Match and loyalty insight, ensures we help our customers to Live Well for Less. We remain well placed to continue to outperform the market," King declared.

Sainsbury's shares ended the day down 8.125p at 283p.

JH