UK supermarket Sainsbury's logs Christmas sales drop

British supermarket chain Sainsbury's, which is seeking to buy Home Retail Group, reported Wednesday falling sales for the third quarter of its financial year, hit by challenging Christmas trade.

Sales fell 0.7 percent in the 15 weeks to January 9, compared with the equivalent period of last year, the nation's second largest supermarket company said in a trading update.

Like-for-like sales excluding fuel, stripping out the impact of new floor space, slid 0.4 percent.

However, that marked an improvement after a drop of 1.1 percent in the previous quarter.

It also beat market expectations for a decline of 0.6 percent, according to analysts polled by Bloomberg News.

“We have traded well during the festive period in a highly competitive market," said Chief Executive Mike Coupe in the statement.

Sainsbury's expects sales in the second half of the current financial year to be better than the first, but sounded a cautious note over the outlook.

"Food deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future," the company added.

Sainsbury's has chosen to address this by offering reduced promotional activity in favour of regular lower prices.

The rapid growth of German-owned discounters Aldi and Lidl has been challenging for incumbent supermarkets like Asda, Sainsbury's and Tesco -- which is Britain's biggest retailer.

Over the last five years, Sainsbury's has sought to offset negative retail trading conditions by diversifying further into non-food businesses such as clothing, general merchandise and financial services.

One week ago, Sainsbury's announced it had made an offer in November to acquire Home Retail Group, but its approach was rejected.

The group revealed it had made a cash-and-shares bid approach in November for HRG but gave no indication of the price.

British media have put the price at around £1.1 billion ($1.6 billion, 1.5 billion euros).

Under British takeover rules Sainsbury now has until February 2 to decide whether to make a formal offer.