Sainsbury's warns of 'very competitive' trading conditions

Sainsbury (Amsterdam: SJ6.AS - news) 's has reported "very competitive" trading conditions, warning that the impact of the falling pound on its business remains uncertain.

The company issued the statement as the supermarket chain and its rivals face intense pressure to pass on rising import costs to customers but retain customers in the face of a continuing industry price war.

Sainsbury's, which bought Argos for £1.4bn last year, said supermarket like-for-like sales were 0.5% down in the fourth quarter to 11 March compared to the same period a year ago.

It blamed the impact of a later Easter and Mother's Day for the performance which was led, Sainsbury's said, by a 4% reduction in non-food sales.

Argos sales boosted the group's overall performance, which was 0.3% up on a like-for-like basis. Shares (Berlin: DI6.BE - news) fell 3% in early trading before recovering.

Sainsbury's said a 4.3% rise in comparable sales at Argos over the period was driven by mobile phones, video gaming, wearable technology and sports equipment.

The FTSE 100 firm is adding 41 Argos Digital stores within its supermarkets as it looks to cut costs in the current Argos store network to focus on online growth and competing with the likes of Amazon on delivery.

While it has been performing strongly for the group, the supermarket chain dragged on annual sales which were 0.6% down on 2015/16.

Recent industry figures from Kantar Worldpanel showed Sainsbury's share of the supermarket trade had slipped to 16.5% - as discounters continued to grapple for customers of the 'big four' chains - also including Tesco (Frankfurt: 852647 - news) , Morrisons and Asda.

The data also suggested that food inflation doubled last month to an annual rate of 1.4% - highlighting price increases from the growing cost of imported goods.

Sainsbury's said it was concentrating on its core strategy of lower, regular prices rather than driving sales through promotions.

Group chief executive Mike Coupe said he was "pleased" with the company's overall performance.

But he added: "The market remains very competitive and the impact of cost price pressures remains uncertain.

"However, we are well paced to navigate the external environment and remain focused on delivering our strategy."