UK's Sainsbury's sales up 3%, poor weather dents non-food demand

By James Davey

LONDON (Reuters) -Sainsbury's, Britain's second-largest supermarket group, reported a 3% rise in first-quarter underlying sales on Tuesday, although weather-related weakness in non-food categories partially offset robust demand for groceries, sending its shares lower.

The group, which has a UK market share of 15.2% trailing only Tesco, said grocery sales rose 4.8% in the 16 weeks to June 22.

However, general merchandise and clothing sales fell 4.3% and sales at the group's Argos business dropped 6.2%, reflecting both poor early summer weather which dented sales of seasonal categories and strength in sales in the same period last year.

Shares in Sainsbury's were down 2%, extending year-on-year losses to 8%.

The group said it still expected full-year 2024/25 retail underlying operating profit of between 1.01 billion and 1.06 billion pounds ($1.28-$1.34 billion), which would be growth of 5% to 10%.

"We've been winning from competitors every month for 15 months, as more and more people are choosing Sainsbury's for their big weekly shop," CEO Simon Roberts said.

He noted that grocery volume, or items sold, growth had remained strong as inflation had slowed, despite tough weather comparatives in recent weeks.

But he told reporters post election interest rate cuts were needed to stimulate discretionary spending.

Sainsbury's and Tesco, which last month reported a 4.6% rise in first quarter underlying UK sales, are pulling away from traditional rivals Asda and Morrisons, which are hamstrung by high debt.

Sainsbury's UK grocery market share was 15.2% in the 12 weeks to June 9, up 30 basis points year-on-year, according to market researcher Kantar.

Under Roberts, Sainsbury's has matched discounter Aldi's prices on essential items and provided better offers for members of its popular Nectar loyalty scheme, financed by cutting costs.

In February it set a new three-year cost savings target of 1 billion pounds and vowed to step up capital expenditure and boost returns for shareholders.

Last month, Sainsbury's agreed to sell most of its banking business to NatWest.

($1 = 0.7917 pounds)

(Reporting by James Davey; Editing by Kate Holton, Sachin Ravikumar, Susan Fenton and Louise Heavens)