Sainsbury's warning adds to retail gloom

FURTHER EVIDENCE of flagging consumer confidence emerged yesterday as Sainsbury's, the supermarket giant, warned of difficult trading conditions while a brace of other companies reported disappointing results.

Sainsbury's sparked a broad sell-off of supermarket shares as it revealed that sales had barely grown in the past five weeks. Meanwhile Whitbread, the brewing, leisure and pubs giant, added to the gloom with a warning over job cuts, weak current trading and a growing North/South divide in consumer activity.

Allied Carpets, the troubled carpet retailer, revealed that sales in stores that were open a year ago were down 12 per cent in the five weeks to 26 October. Shares in Vymura lost 30 per cent of their value after the specialist wallpaper group warned that flagging demand in the UK and lower exports meant profits would come in well below the market's expectations.

However, it was Sainsbury's that proved the biggest shock to investors, who have traditionally viewed supermarket retailers as being immune to a consumer downturn.

Dino Adriano, the chief executive, said same-store sales had grown by just 1 per cent in the past five weeks. In the company's Homebase chain of do-it-yourself stores like-for-like sales dropped by 1 per cent.

The figures, which overshadowed a 12 per cent increase to pounds 461m in first- half pre-tax profits before exceptional items, suggested a sharp slowdown in demand in recent weeks.

Observers said the decline was likely to have been felt by other supermarket chains as well, prompting analysts to slash their profit forecasts for the sector and leading investors to dump shares in Tesco, Asda, Safeway and Somerfield.

"Sainsbury's and the rest of the food retailing sector are only going one way and that is down," one expert said.

Mr Adriano said the group intended to carry on investing in new stores, including its local convenience store format, of which it is planning to build another 10.

However, this spending would be continually reviewed. "If the slowdown continues we may have to think about the rate at which we roll out new space," he said.

Mr Adriano added that Sainsbury's was thinking about how it could expand its brands outside the UK, although it had not yet made any decisions. He insisted the company would stick to mainly selling food.

Meanwhile David Thomas, chief executive of Whitbread, said trading in September and October has continued to be difficult and although some brands have recovered from July and August, the North and the Midlands is not as buoyant as the South-east.

Capital expenditure is being scaled back this year by pounds 12m to pounds 450m and will be lower next year, although Whitbread is spending pounds 300m more on Travel Inns, its chain of budget hotels, to double the number to 400 by the end of 2003.

More David Lloyd Leisure health clubs will also open, but Whitbread is cutting the spend on its managed pubs and restaurants.