Internet eats up £30m as Sainsbury's sales slip

SAINSBURY'S YESTERDAY revealed a further slide in sales alongside heavy exceptional charges for a new e-commerce strategy which will be detailed at the group's interim results next month.

SAINSBURY'S YESTERDAY revealed a further slide in sales alongside heavy exceptional charges for a new e-commerce strategy which will be detailed at the group's interim results next month.

The £42m of additional exceptional items prompted another round of profit downgrades in the City. Sainsbury's trading statement showed that a store redevelopment programme has continued to disrupt its UK supermarkets business with underlying sales in the second quarter down by 0.8 per cent on the previous year. The figures were better than market expectations, which forecast a 2 per cent sales slump. However, analysts said the rise had been flattered by an increase in petrol prices. Stripping out that benefit the underlying figure would be 1.8 per cent down, they said.

Philip Dorgan, retail analyst at WestLB Panmure commented: "Everyone is downgrading their profit figures, the sales are not improving and the likelihood of a foreign buyer coming in for them looks increasingly remote. The shares are overvalued." WestLB has downgraded its full year profit figures from £635m to £590m.

Dino Adriano, Sainsbury's embattled chief executive, claimed the group is now heading in the right direction. "The sales performance is not good yet but it gives us some encouragement to believe we are on the right track." Mr Adriano has pledged to return Sainsbury's UK supermarkets to a position of sales growth by the end of the year.

But City analysts were surprised by the level of exceptional items. The biggest "one-off" charge is £30m for an accelerated investment in electronic commerce. Half of this is to go on a revamped website, a figure that analysts said was astonishingly high.

Sainsbury's is planning to expand its Orderline home shopping offer via a series of standalone "picking centres", which will be separate from its supermarkets. The first will open early next year in West London, with others to follow.

Sainsbury's has introduced store expansions, improved fittings and lay-outs and a wider product offer in 100 of its stores in an attempt to fight back against competition from Tesco and the Wal-Mart-owned Asda. The store revamp will be completed in the next nine months

Mr Adriano declined to say how much difference the group's "Price Guarantee" promise had made to sales since it was launched last month. Sainsbury's group like for like sales in the second quarter were up by 1.2 per cent on the same period last year.

The Homebase DIY division was the best performer, with a 12.6 per cent increase in underlying sales. Sales at Shaw's, the group's US division, were up by 3.5 per cent. The shares closed 2p higher at 355.75p.