Sainsbury's puts sales growth slowdown down to price cuts

By James Davey

LONDON (Reuters) - Sainsbury's, Britain's second biggest supermarket group, said sales growth slowed over the past three months because of price cuts and denied it had been distracted by its deal to take over rival Asda.

The group agreed a 7.3 billion pound ($9.7 billion) takeover of Walmart-owned Asda in April. The combination, which would overtake Tesco as Britain's biggest supermarket chain, is being looked at by Britain's regulator, the Competition and Markets Authority (CMA).

Retail like-for-like sales, excluding fuel, rose 0.2 percent in the 16 weeks to June 30, Sainsbury's said on Wednesday, giving figures for the first quarter of its financial year.

While that was ahead of analysts' average forecast of a 0.1 percent fall it was markedly below growth of 0.9 percent in the previous quarter.

"The main explanation is if you...compare quarter four to quarter one, inflation in our business has dropped by about 1.5 percent and that's as a direct result of investing in price," Chief Executive Mike Coupe told reporters.

He pointed to price cuts totaling 150 million pounds in fresh meat, fruit and vegetables since March and said they had resulted in an improved sales volume trend.

He said while the quarter was one of significant change in Sainsbury's store management structures and also saw a rephasing of promotions, the Asda deal was not a factor.

Coupe said Sainsbury's recently won the industry's main award for service and availability for the sixth consecutive year.

"You don't do that if you are distracted by outside forces," he said. "Underlying we're pleased with the performance. We're focused on doing the day job."

Chief Financial Officer Kevin O'Byrne estimated there were only about 15 people in the organisation working on the Asda deal currently.

WEAKEST OF BIG FOUR

According to the most recent industry data and company updates Sainsbury's has seen the weakest trading among Britain's big four grocers, which also includes fourth-ranked Morrisons.

Shares in Sainsbury's have risen 32 percent so far this year on the back of deal. They were up 1.6 percent at 0915 GMT.

The CMA's probe is expected to be lengthy and Sainsbury's does not anticipate the deal being concluded until the second half of 2019.

"The competition authorities may yet spoil the party though. There are concerns over the effect the merger will have on suppliers and consumer choice," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

Prior to Wednesday's update analysts were on average forecasting an underlying pretax profit for 2018-19 of 629 million pounds, up from 589 million pounds in 2017-18.

Sainsbury's also said on Wednesday it has agreed a financing package of 3.5 billion pounds for the deal.

($1 = 0.7583 pounds)

(Reporting by James Davey; editing by Sarah Young)