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Asda sales fall as shoppers feel pinch

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Reuters
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today Aug 17, 2010
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Asda
LONDON, Aug 17 (Reuters) - Asda, Britain's second-largest grocer, posted a fall in underlying sales for the second quarter in a row, with consumer confidence buffeted by the prospect of public sector spending cuts, rising taxes and job losses.

The 377-store firm, owned by U.S. retailer Wal-Mart Stores (WMT.N), said on Tuesday the outlook to the end of 2010 remained challenging, with UK families facing the lowest level of disposable income in the final quarter for two years.

"These are increasingly uncertain times for millions of families across the UK," said Chief Executive Andy Clarke.

Asda said sales at stores open at least a year fell 0.4 percent, excluding petrol, in the three months to June 30, its fiscal second quarter.

That compares with a decrease of 0.3 percent in the first three months of the year, the first fall since early 2006, and a rise of 4.6 percent in the final quarter of 2009.

Asda said its total sales increased by a "low single digits" percentage, while gross profit margins rose year on year as it sold a higher proportion of George clothing and general merchandise which command higher margins than food. Operating income grew faster than sales.

"It's another disappointing quarter for Asda, with more market share loss. The price basket guarantee promotion evidently wasn't as effective as they claimed it would be," said Nick Bubb, analyst at Arden Partners.

Data from Kantar Worldpanel, also published on Tuesday, showed Asda's market share fell 0.3 percent to 16.9 percent in the 12 weeks to Aug. 8, in part because it has been opening fewer new stores than rivals.

BRITISH CONSUMERS MORE WARY

UK consumers, worried by government measures to rein in record debt with tax rises and public sector cuts, are becoming more wary in their spending.

"Asda's customers are facing recently announced tax increases and cuts in government spending. These are likely to cause our UK customers to face a challenging 12 to 18 months," said Wal-Mart International president and CEO Doug McMillon.

Asda said research carried out on its behalf by economists Cebr forecast UK families' disposable income in December at 172 pounds ($268.4), 5 pounds lower than 2009.

It has responded to the tough environment by cutting prices on high volume staples such as milk, eggs, bread and bananas and in April it launched a price guarantee, offering to refund shoppers the difference if they can find their groceries cheaper elsewhere.
Asda has also set out plans to become the UK's biggest non-food retailer within five years, helped by a rapid expansion of its standalone Asda Living stores.

It underscored its ambitions in May with the purchase of the 193-store Netto UK from its Danish owner for 778 million pounds.

In June market leader Tesco (TSCO.L) posted a 0.1 percent rise in first-quarter underlying UK sales, its weakest performance for years, while J Sainsbury (SBRY.L), Britain's third-largest grocer, reported its smallest rise for over five years.

In May Wm Morrison Supermarkets (MRW.L), Britain's No.4 grocer, posted a steep drop in underlying sales growth, pegging back its long-standing outperformance of rivals.

Wal-Mart, the world's biggest retailer, posted a drop in U.S. same-store sales and said it would focus on curbing expenses to help boost profits this year as consumer sentiment remains soft.

($1=.6408 Pound) (Editing by Will Waterman and Hans Peters)

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