UPDATE 2-Asda sales fall as shoppers feel pinch

* Q2 like-for-like sales ex-fuel down 0.4 pct

* Gross margin higher year on year

* Operating income growing faster than sales

* Says UK families’ disposable income falling

(Adds details, background, Kantar data, analyst comment)

By James Davey

LONDON, Aug 17 (BestGrowthStock) – Asda, Britain’s second-largest
grocer, posted a fall in underlying sales for the second quarter
in a row, with consumer confidence buffeted by the prospect of
public sector spending cuts, rising taxes and job losses.

The 377-store firm, owned by U.S. retailer Wal-Mart Stores
(WMT.N: ), said on Tuesday the outlook to the end of 2010 remained
challenging, with UK families facing the lowest level of
disposable income in the final quarter for two years.

“These are increasingly uncertain times for millions of
families across the UK,” said Chief Executive Andy Clarke.

Asda said sales at stores open at least a year fell 0.4
percent, excluding petrol, in the three months to June 30, its
fiscal second quarter.

That compares with a decrease of 0.3 percent in the first
three months of the year, the first fall since early 2006, and a
rise of 4.6 percent in the final quarter of 2009.

Asda said its total sales increased by a “low single digits”
percentage, while gross profit margins rose year on year as it
sold a higher proportion of George clothing and general
merchandise which command higher margins than food. Operating
income grew faster than sales.

“It’s another disappointing quarter for Asda, with more
market share loss. The price basket guarantee promotion
evidently wasn’t as effective as they claimed it would be,” said
Nick Bubb, analyst at Arden Partners.

Data from Kantar Worldpanel, also published on Tuesday,
showed Asda’s market share fell 0.3 percent to 16.9 percent in
the 12 weeks to Aug. 8, in part because it has been opening
fewer new stores than rivals.

BRITISH CONSUMERS MORE WARY

UK consumers, worried by government measures to rein in
record debt with tax rises and public sector cuts, are becoming
more wary in their spending. [ID:nSLA9JE69U]

“Asda’s customers are facing recently announced tax
increases and cuts in government spending. These are likely to
cause our UK customers to face a challenging 12 to 18 months,”
said Wal-Mart International president and CEO Doug McMillon.

Asda said research carried out on its behalf by economists
Cebr forecast UK families’ disposable income in December at 172
pounds ($268.4), 5 pounds lower than 2009.

It has responded to the tough environment by cutting prices
on high volume staples such as milk, eggs, bread and bananas and
in April it launched a price guarantee, offering to refund
shoppers the difference if they can find their groceries cheaper
elsewhere. [ID:nLDE63Q0H2]

Asda has also set out plans to become the UK’s biggest
non-food retailer within five years, helped by a rapid expansion
of its standalone Asda Living stores. [ID:nLDE63E15S]

It underscored its ambitions in May with the purchase of the
193-store Netto UK from its Danish owner for 778 million pounds.
[ID:nLDE64Q0N]

In June market leader Tesco (TSCO.L: ) posted a 0.1 percent
rise in first-quarter underlying UK sales, its weakest
performance for years, while J Sainsbury (SBRY.L: ), Britain’s
third-largest grocer, reported its smallest rise for over five
years. [ID:nLDE65D1QM] [ID:nLDE65E0TQ]

In May Wm Morrison Supermarkets (MRW.L: ), Britain’s No.4
grocer, posted a steep drop in underlying sales growth, pegging
back its long-standing outperformance of rivals. [ID:nLDE6441E2]

Wal-Mart, the world’s biggest retailer, posted a drop in
U.S. same-store sales and said it would focus on curbing
expenses to help boost profits this year as consumer sentiment
remains soft. [ID:nN17234410]

(For more stories on austerity-era Britain, click on
[ID:nLDE6720PZ])
($1=.6408 Pound)
(Editing by Will Waterman and Hans Peters)

UPDATE 2-Asda sales fall as shoppers feel pinch