Source: http://business.timesonline.co.uk/article/0,,9074-2314866,00.html

ASDA, Britain’s second-biggest supermarket chain, admitted that competitive pressure had forced it to cut its margins to boost sales during this summer’s grocery boom.

The UK arm of the American supermarket giant Wal-Mart said that underlying sales had risen by about 2 per cent in the three months to the end of July, ahead of the company’s expectations and a significant improvement on the company’s last reported sales growth, when Asda revealed its first decline in underlying sales since it was taken over by its American parent.

However, analysts said that Asda was not performing as well as rivals such as Wm Morrison, which recorded a 6.1 per cent rise in underlying sales in the nine weeks to the end of July.

Marks & Spencer and Waitrose have also revealed exceptionally strong trading over the period as shoppers stocked up on alcohol and barbecue supplies during the heatwave that accompanied this summer’s football World Cup.

Although J Sainsbury and Tesco have yet to report figures for the summer, analysts believe that both will be able to report strong sales growth, given recent data from TNS, the market research firm.

One analyst said: “June and July had fantastic trading conditions with the warm weather and the World Cup. These figures must be disappointing for Asda.” He pointed out that Morrison had been able to increase gross margins by 0.6 per cent over the period, as well as raising underlying sales, while deflation in the grocery market is thought to have slowed in the past two months.

Wal-Mart said that Asda had performed well during the World Cup and it was “encouraged because our sales performance and merchandising efforts in the UK have led to an increase in market share when compared to the same period last year”.

The latest figures from TNS show that Asda increased its market share from 16.4 per cent in the 12 weeks to May 21 to 16.6 per cent in the 12 weeks to July 16. The supermarket said that sales performance had been driven by an increase in the number of customers and an improvement in shoppers’ perceptions of the chain.

Despite the upbeat comments from Wal-Mart, Andy Bond, Asda’s chief executive, is likely to be disappointed with the performance, given the vast amount of effort that he has put into a turnaround plan for the chain.

Mr Bond’s initiatives include extending the George brand with a high-fashion range of clothing, Must Have. Asda said that Coleen McLoughlin, girlfriend of the England football star Wayne Rooney, would front a new two-week television advertising campaign for Must Have that will start this month.

Asda has opened seven new stores this year, including two trial Asda “Essential” stores, one Asda “Living” store and four superstores.

Profits slump at Wal-Mart

Wal-Mart yesterday reported that group profits had slumped 26 per cent over the quarter, the first fall in profits for more than ten years. The fall was largely the result of an $863 million (£456 million) loss on the sale of Wal-Mart’s German business, announced last month.

Underlying profits were in line with expectations and Wal-Mart said that it expected to reach profit targets for the year.

The company’s shares are down about 4.5 per cent this year on the back of lacklustre sales growth at its stores.