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Slump in toys and gaming sales spoils Sainsbury's Christmas

By James Davey
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Slump in toys and gaming sales spoils Sainsbury's Christmas

Signage for Sainsbury's is seen at a branch of the supermarket in London

By James Davey

LONDON (Reuters) - Core sales at Sainsbury's <SBRY.L> slipped in its key Christmas quarter as a drop in demand for toys and gaming products at the British retailer eclipsed a solid performance in food.

The group, which is trying to rebuild investor confidence following a botched attempt to buy rival Asda <WMT.N>, also cautioned on Wednesday that British shoppers are likely to hold back on spending until there is greater clarity on the government's March 11 budget and on Brexit.

"As we look forward, we’re working on the assumption that not a lot’s going to change in terms of sentiment and backdrop unless and until there’s a significant event in the world of politics that would make people feel more confident about the future," Chief Executive Mike Coupe told reporters.

Sainsbury's like-for-like sales, excluding fuel, fell 0.7% in the 15 weeks to Jan. 4, its fiscal third quarter, worse than a second quarter fall of 0.2%.

While grocery sales grew 0.4%, slightly ahead of analysts' expectations, sales of general merchandise fell 3.9%, with toys and gaming recording big declines. Sainsbury's is a major player in both markets through its Argos chain.

Finance chief Kevin O'Byrne said the overall UK toy market was down about 10%, while the gaming market was down over 35% due to a lack of new consoles this year.

"We’ve got big shares in those markets – we’re the largest toy retailer in the UK and we’ve got about 18% of the games market," he said, noting Sainsbury's performance in toys was a little worse than the market, with its outcome in gaming in line.

General merchandise represents about 24% of Sainsbury's total revenue, excluding fuel.

The group said colder weather helped drive a 4.4% increase in clothing sales, and party and gifting ranges performed well.

It added it was comfortable with analysts' average forecast for full year 2019-20 profit - underlying pretax profit of 584 million pounds ($768 million) down from 601 million in 2018-19.

Shares in the group were down 0.5% at 0954 GMT, extending losses over the last year to 14%.

"In a challenging market, Sainsbury's is toughing it out more effectively, which may make commercial life a little more challenging year-on-year for Tesco UK," said Shore Capital analyst Clive Black.

Market leader Tesco <TSCO.L> is due to update on trading on Thursday.


LEAST WORST PERFORMER

In September, Coupe put technology, cost cutting and paying off debt at the heart of a new plan designed to show Sainsbury's can prosper on its own.

Industry data on Tuesday showed Britain's supermarkets recorded the lowest sales growth over Christmas for five years.

However, the data from market researchers Nielsen and Kantar showed Sainsbury's was the least worst performer amongst the big four players - also including Tesco, Walmart <WMT.N> owned Asda and Morrisons <MRW.L>.

Morrisons reported on Tuesday a 1.7% fall in underlying sales over the 22 weeks to Jan. 5.

All the big four supermarket chains are losing market share to German-owned discounters Aldi and Lidl.

On Monday, Aldi UK reported a 7.9% increase in total sales in the four weeks to Dec. 24 and said its like-for-like sales were positive.


(Reporting by James Davey; Editing by Guy Faulconbridge and Mark Potter)