By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- In a sour day for U.K. supermarket
chains, shares of J Sainsbury PLC sank Wednesday, with investors
responding to a sales decrease, while rival Tesco PLC was lower as
an investigation into its accounting practices got underway.
Meanwhile, the U.K. joined the eurozone in receiving lackluster
data about the manufacturing sector.
The benchmark FTSE 100 fell 1% to 6,557.52, as part of a broader
market selloff in Europe. On Tuesday, the index closed the third
quarter with a 1.8% loss.
Bucking Wednesday's downtrend were shares of Royal Mail PLC ,
higher by 1.9% after an upgrade to neutral from sell at UBS.
Strain on supermarkets: Sainsbury shares dropped 7% as the
company said quarterly same-store sales to Sept. 27 declined 2.8%,
excluding fuel, the third consecutive quarterly fall.
"These conditions are likely to persist for the foreseeable
future and we now expect our like-for-like sales in the second half
of the year to be similar to the first half," Sainsbury's chief
executive, Mike Coupe, said in a statement.
In a conference call, Coupe said Sainsbury will provide a more
complete view of its thinking around dividends and other strategic
plans on Nov. 12.
A "much more aggressive pricing policy" launched by Sainsbury
"makes sense on a medium-term view but will be painful short-term,"
said analysts at Societe General in a note about the European
consumer staples sector. They said they view Sainsbury as being in
better shape than rivals.
Shares of competitor Wm Morrison Supermarkets PLC closed lower
by 2.7%.
Meanwhile, shares of Tesco lost 3.2% after the U.K. Financial
Conduct Authority said it launched a full investigation into an
accounting error by the retailer. In September, Tesco suspended
four senior executives and began looking into the 250 million pound
($405.7 million) overstatement of its first-half profit
forecast.
Data: The pound (GBPUSD) dropped below $1.62 against the dollar
after Markit and Chartered Institute of Purchasing and Supply said
their purchasing managers index for the U.K. manufacturing sector
slipped in September. The reading of 51.6 marked the slowest pace
of growth in 17 months. It was also below expectations of an
increase to 53.
"The continued weakness in eurozone countries and the
euro-sterling exchange rate appeared to particularly undermine
growth in September, and resulted in near stagnation in new
manufacturing orders," said CIPS Group Chief Executive David Noble
in Wednesday's report.
Sterling later recovered from session lows, returning to late
Tuesday levels around $1.6213.
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