2nd UPDATE: Sainsbury Sales Slow; Sees Low Industry Growth

16th Jun 2010 09:55

(Rewrites. Adds CEO, analysts comments, detail.) By Simon Zekaria Of DOW JONES NEWSWIRES LONDON (Dow Jones)--J Sainsbury PLC (SBRY.LN) Wednesday reported slowing sales growth in the first quarter and warned it expects little or no short-term industry growth as U.K. grocers battle inflation and macroeconomic headwinds. "The (immediate) outlook is low to no growth and low to no inflation. We don't see there has been a step up in any way. It is difficult to talk in terms of the consumer turning the corner," Chief Executive Justin King told reporters. King said the company would need at least three months notice to implement any proposed hike in the rate of value-added tax. He reiterated that any change in VAT on food would be bad for retailers and the government should avoid a raise during the key Christmas trading period. Economists expect the U.K.'s new coalition government to announce an increase in VAT to 20% from 17.5% when it presents an emergency budget next week. But retailers are concerned the tax hike could jeopardize the recovery and see consumers cut back on spending once more. King said it is for the government to decide whether the economy will cope with added inflation in the system, estimated at more than 1%, resulting from a VAT hike. Separately, King said there is no indication that the Qatar Investment Authority has changed its stance of being anything other than a long-term shareholder, following recent reports that QIA is eyeing a stake in Citigroup Inc. (C) as part of a wider acquisition strategy. Sainsbury--the third largest U.K. supermarket chain by sales behind Tesco PLC (TSCO.LN) and Wal-Mart Stores Inc.'s (WMT) Asda Group Ltd.--posted a 1.1% year-on-year rise in sales from stores open at least a year, excluding fuel, for the 12 weeks to June 12. Excluding fuel and value-added tax, the figure was around 0.3% to 0.4%, the company said. This compares with a 7.8% year-on-year rise, excluding fuel and value-added tax, last year. Rival Tesco also reported slowing first-quarter same-store U.K. sales Tuesday, up 0.1% excluding fuel and adjusted for VAT. At 0829 GMT, Sainsbury shares were up 3 pence, or 0.7%, to 327 pence, valuing the company at GBP6.07 billion. Sainsbury said it is trading in line with forecasts and is well-placed for further progress, with new stores outperforming expectations. However, an analyst said Sainsbury's update is slightly disappointing given the two extra weeks of trading it enjoyed compared with Tesco before the start of the soccer World Cup. Hargreaves Lansdown analyst Richard Hunter said "sales growth was fairly anaemic. The comparison with Tesco is inevitable, but Sainsbury has not made any notable inroads into eroding the bellwether's position." Sainsbury's total sales, excluding fuel, rose 4.4% in the quarter, compared with a 7.6% rise a year earlier. The group said it is on track to increase its store space by 1.45 million square feet this fiscal year. Online grocery sales are growing by just under 20% and non-food is performing strongly, the company said. It also said the World Cup range is selling well, with 50,000 'vuvuzela' trumpet horns sold from a stock of 70,000. By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; [email protected] (END) Dow Jones Newswires June 16, 2010 04:55 ET (08:55 GMT)