Profit forecasts scaled back

Andover Advertiser: Shop prices fell at their fastest rate for at least seven years last month, according to industry data Shop prices fell at their fastest rate for at least seven years last month, according to industry data

Sainsbury's and Mothercare scaled back financial targets today as more details of the aggressive discounting needed by retailers over the Christmas period began to emerge.

The supermarket chain barely achieved like-for-like quarterly sales growth, nudging up just 0.2% despite record trading in the period immediately leading up to December 25.

It was forced to admit full-year growth would now come in below a previously expected 1-1.5% range, prompting analysts to shave annual profit forecasts.

Meanwhile Mothercare saw shares nosedive after a 9.9% fall in UK sales prompted it to issue a profits warning. It blamed the "highly promotional" nature of the Christmas period and lower seasonal footfall.

The updates came as figures from the British Retail Consortium revealed shop prices fell by 0.8% in December - the fastest rate for at least seven years - as stores and supermarkets battled desperately to capture festive trade.

Sainsbury's only just managed to maintain a nine year record of consecutive quarterly sales rises as buoyant performances in its growing online and convenience store divisions made up for a sluggish period in its supermarkets.

Chief executive Justin King said: "The core of our business hasn't grown. That corresponds with a really big change in customer shopping habits."

But he said Sainsbury's had outperformed competitors during a period when the supermarket sector appears to have been in a general decline.

Its own sales were lower over a "very tough sales environment" in October and November as customers tightened their belts following a heatwave-fuelled summer spending splurge.

But overall figures for the 14 weeks to January 4 were rescued by what Mr King described as "our best Christmas ever" - with more than 28 million transactions in the seven days prior to December 25.

The marginal third quarter sales increase was better than the performance expected by analysts, who had pencilled in a fall.

But Mr King warned of further struggles in the coming period as customers spend cautiously in the wake of the festive season, against a background of a continuing squeeze in household incomes.

Fourth quarter like-for-like sales are now expected to achieve a similarly meagre rise, marking a pronounced slowdown after a 2% hike in the second quarter.

The figures look weak in comparison to a 4.1% like-for-like sales increase announced by Waitrose - though this covered just the 12 days ending on December 31.

Though the figures are not directly comparable, the performance of Sainsbury's upmarket rival served to highlight the squeeze on the big four supermarkets from higher-end offers as well as discounters Aldi and Lidl.

They also came as wine merchant Majestic recorded like-for-like UK store sales growth of 2.8% for the 10 weeks to January 6, boosted by purchases of wine bottles costing more than £20.

Sainsbury's itself notched up growth of more than 10% in its premium Taste the Difference brand which aims to capture the higher-spending market.

Meanwhile Mr King took aim at rivals who he accused of being "disingenuous" about the periods they chose to report in their trading updates - though without naming any.

But Sainsbury's was put in the shade by like-for-like sales growth of 1% reported by the Co-op today over the 13 weeks to January 4.

Analysts at Barclays said Sainsbury's quarterly improvement had beaten their forecast of a 0.4% fall but said they now expected a pre-tax profits increase for the full year to be lower.

Panmure Gordon noted that online, convenience, Taste the Difference and clothing had all performed strongly.

They said: "We think Sainsbury's is the best placed of the UK food retailers, and the trading statement is encouragingly towards the upper end of market expectations."

Richard Hunter, head of equities at Hargreaves Lansdown, said keenly-priced goods at the store had helped it lure consumers.

"Less positively the likely reining in of spending by consumers following the festive period will likely lead to pressure for the current quarter," he added.

"In addition, the rise of the discount supermarkets and Tesco's strong investment programme is likely to maintain the fiercely competitive nature of the sector."

Tesco is expected to post another quarterly sales fall when it reports tomorrow on another big day of retail updates.

Attention will also be focused on Marks & Spencer and whether it has been able to begin turning around the fortunes of its beleaguered clothing division.

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