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Sainsbury’s has reported a fall in underlying sales, with the UK’s second-largest grocer warning the market remains “challenging”. Like-for-like retail sales – excluding fuel – were down 0.8% in the 12 weeks to 4 June as food price deflation continued to grip the sector.

In the previous quarter, sales had risen for the first time in two years.Chief executive Mike Coupe said price pressures meant “the market will remain competitive”.

But Mr Coupe said he expected the supermarket “to continue to outperform our major peers”. Total group sales rose 0.3% for the three months, with an “encouraging performance” from the bank.

Earlier this year, Sainsbury’s agreed a £1.4bn takeover of Argos-owner Home Retail Group, although last month the Competition and Markets Authority said it would examine the deal to see if it would lead to “a substantial lessening of competition” for consumers.

Vinyl comeback

The UK’s big four supermarkets have been engaged in a price war as German discounters Aldi and Lidl expand rapidly in the UK.

Sainsbury’s strategy has been to invest in improvements in stores and cut prices on everyday products rather than run promotions. During the three months Sainsbury’s ended its Brand Match campaign.

Mr Coupe said: “Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future.

“However, we are confident that our strategy to be a trusted multi-channel, multi-product and services retailer is delivering and will enable us to continue to outperform our major peers,” he said.

The retailer has also re-introduced sales of vinyl records, after a break of 25 years, and now claims to be the biggest seller of vinyl on the High Street with an 8% market share.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Of late there have been some tentative signs that the worst might be over, with transaction volumes rising, but falling food prices continue to keep like-for-like sales in negative territory.

“Nothing will move the dial at Sainsbury more than the planned acquisition of Home Retail Group, the parent company of Argos. If the takeover proceeds, integration goes smoothly, and performance is improved, the deal will look a triumph.

“But like Sainsbury, Argos has its own problems, and the outcome of two challenged businesses joining forces still remains very uncertain,” he said.

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