UPDATE 2-Sainsbury's sales fall as King era draws to a close

Wed Jun 11, 2014 6:01am EDT

* Q1 like-for-like sales, ex fuel, down 1.1 pct

* 2nd straight quarterly fall after 9 years of growth

* Q1 total sales up 1.0 pct, ex fuel

* CEO Justin King to be succeeded by Mike Coupe after July 9 AGM

* Shares up 1.8 pct (Adds detail, CEO, commercial director, analyst comments, shares)

By James Davey

LONDON, June 11 (Reuters) - British grocer J Sainsbury posted a second straight fall in quarterly underlying sales, highlighting the challenges facing its new CEO as the long-serving Justin King steps down amid subdued consumer demand and mounting competition.

King, credited with reviving Sainsbury's fortunes during a decade at the helm, will be succeeded by commercial director Mike Coupe after the firm's shareholder meeting on July 9.

The management change comes at a time when the UK grocery sector is in a state of flux. Though consumers are benefiting from lower food price inflation and reduced fuel prices, they are continuing to spend cautiously and industry sales are growing at the slowest rate in over a decade.

Consumers are shopping around to save money and are wasting less, shying away from big weekly shops to buy little and often in local convenience stores and buying more online.

At the same time, discounters Aldi and Lidl and upmarket Waitrose and Marks & Spencer are taking market share from the middle ground, leading market leader Tesco and No.4 Morrisons to launch price cuts that analysts fear could squeeze industry profit margins.

"I would have preferred a strong positive number as my last quarter but the key thing to point to is how strong our performance remains versus our grocery competitors," King said on Wednesday, adding he was confident the firm would outperform rivals this year, helped by its fast-growing convenience store and online businesses and its popular own-brand ranges.

Sainsbury's, which is battling with Wal-Mart Stores' Asda to be the UK's No. 2 supermarket, said sales at stores open over a year fell 1.1 percent, excluding fuel, over the 12 weeks to June 7, its fiscal first quarter.

That compared with analysts' forecasts of down 0.5-1.5 percent and a fall of 3.1 percent in the previous quarter - a decline that followed nine unbroken years of sales growth.

Last week Tesco reported a 3.8 percent fall in first-quarter like-for-like sales, its worst quarterly performance for 40 years. Last month Morrisons posted a 7.1 percent slump in first-quarter sales, though Asda reported a 0.1 percent rise.

Data published last week confirmed Asda as the best current performer of the "big four" UK grocers, with its year-on-year market share up 0.1 percentage points to 17.1 percent, while Sainsbury's slipped 0.2 points to 16.5 percent.

Shares in Sainsbury's, down nearly 10 percent so far this year, were up 2 percent at 0950 GMT.

LOSING SALES

"Sainsbury's may be feeling pleased it is beating its two (UK) quoted rivals in lfl (like-for-like) sales, in that it is losing sales at a slower rate, but it is still losing lfl sales," said HSBC analyst David McCarthy.

He noted that when growth from convenience stores, store extensions, relatively new selling space and the internet was stripped out, Sainsbury's underlying sales volumes were likely down 3-4 percent.

The firm kept its forecast for underlying sales growth for the 2014-15 year similar to the 0.2 percent achieved in 2013-14 - far better than expectations for Tesco and Morrisons - and said it would stay competitive on prices.

"We're playing our part in this price skirmish, we're standing toe to toe with our competitors and our pricing has ... never been more competitive than it is today," said King, without giving details on how much this was costing the firm.

Sainsbury's reckons it can set itself apart from rivals with a strategy that focuses on own-brand products, and on the quality, provenance and ethical credentials of its food.

Coupe, instrumental in much of Sainsbury's success over the last 10 years, is confident the firm can avoid the turmoil that management change has seen at retailers such as Tesco.

His accession, announced in January, had been planned over a long period and, and the firm's wider leadership team was very stable and experienced, he said.

"The business is in great shape," Coupe said. "I'm confident that we can continue to emphasize our points of differentiation, whilst maintaining our price position and growing the parts of the business that we know have got future upside potential, like online and convenience." (Editing by Kate Holton and Mark Potter)