Asda sees sales drop by 0.3pc in the first quarter

The Leeds-based group is the first of the big four supermarkets to report a fall in underlying sales in what it described as

a "disappointing" first quarter.

Asda, owned by United States retail giant Wal-Mart, said like-for-like sales fell 0.3 per cent in the three months to March 31.

Rival Sainsbury's said that underlying sales rose 1.7 per cent in the three months to March 20, while Bradford-based Morrisons said underlying sales rose 0.8 per cent in the 13 weeks to May 2.

Asda's move into the red follows a 4.6 per cent increase in underlying sales in the last three months of 2009.

Analysts said that some of the fall could be blamed on the wintry weather conditions at the beginning of the year which hit Asda more than rivals because customers could not drive to its large out-of-town stores. But they added that this would not account for all of the fall.

Data from market researcher Kantar has shown Asda falling behind its rivals. Asda said that this was partly due to its rivals opening more new space over the past few months.

Kantar added that despite the pressure on household budgets, shoppers were treating themselves after a long and deep recession and this did not favour Asda's focus on low prices.

Asda is in the process of revamping its premium "Extra Special" range in order to improve the quality and compete with Tesco's "Finest" and Sainsbury's "Taste The Difference" ranges.

Asda's chairman Andy Bond said: "By our own high standards, our first-quarter sales were disappointing. The market has slowed down significantly since the turn of the year, and I expect conditions to remain tough for some time."

New Asda chief executive Andy Clarke warned that the conditions would remain difficult as the new Government weighs up tax rises to tackle a record deficit.

"Listening to customers, it's clearer than ever that the second half of this year will be challenging for them. High petrol prices, and the prospect of tax increases from the incoming Government are weighing heavily on their minds."

UK grocers are suffering from a sharp slowdown in food price inflation while at the same time high petrol prices are eating into the weekly shopping budget.

RBS analyst Justin Scarborough said grocery sales are likely to remain subdued over the coming months. However he added that if England do well in the World Cup and forecasters are right about their predictions of a good summer, there could be a surprise pick-up.

Asda said first-quarter profits grew ahead of sales and beat internal targets, though it did not give any figures.

The group announced a 12m investment to reduce queues and assist customers.

Last month Asda announced plans for a big expansion of smaller-format stores and non-food shops.

The group aims to become the clear market number two in food and the leader in non-food sales in the next five years – opening 100 supermarkets and 150 Asda Living general merchandise stores.

Parent company Wal-Mart's quarterly results beat Wall Street expectations, but it warned that second quarter earnings could fall short of estimates as shoppers remain under pressure.

Wal-Mart's US discount stores have lost sales to competitors in recent months as consumers renew shopping for discretionary items rather than focusing on low-priced essentials that helped to boost Wal-Mart during the recession.

Workers to split 47m payout

Nearly 16,000 Asda workers are to share a record 47m in the company's sharesave scheme.

This year's plan is the biggest payout since US giant Wal-Mart bought Asda in 1999, offering a 90 per cent increase on savings.

Asda workers who saved the maximum amount of 250 per month for the past three years will receive 17,000 in total, 8,000 more than their original 9,000 investment.

The majority of colleagues said they would spend the windfall on home improvements or saving up for holidays and weddings.

The sharesave plan allows employees to save between 5 and 250 a month.