British supermarket chain Asda, owned by Walmart, reported a sixth straight quarter of underlying sales growth on Thursday, outpacing Sainsbury's, its potential buyer.
Asda agreed in April to a £7.3 billion (€8.2 billion) cash and shares takeover by Sainsbury's - a combination that could overtake Tesco as Britain's biggest supermarket group if it is approved by the country's competition regulator.
Asda said its like-for-like sales rose 2% in its fiscal third quarter to 30 September, boosted by strong sales of own label products. That compared with a rise of 0.4% in the previous quarter, or a 2.6% increase adjusted for Easter.
Competitive Market
Last week, Sainsbury's reported a 1.0% increase in second-quarter like-for-like sales, while industry data published on Tuesday showed Asda was the fastest growing of Britain's big four grocers, which also includes number 4 Morrisons. All, apart from Asda, lost market share to German-owned discounters Aldi and Lidl.
Asda cautioned its gross profit rate declined, reflecting price cuts in a highly competitive grocery market.
"We were pleased to welcome an additional 115,000 customers through our doors and outperform the market for the second quarter running," said Chief Executive Roger Burnley.
Burnley succeeded Walmart veteran Sean Clarke as CEO in January with full knowledge the deal with Sainsbury's was on the cards. He re-joined Asda in 2016 as chief operations officer after a decade at Sainsbury's.
Burnley has delivered a steady improvement in Asda's fortunes over the last year, helped by lower prices, more innovation in own-brand products and improved store standards.
The Merger
The Sainsbury's deal is currently being examined by the Competition and Markets Authority (CMA), which said last month it expected to issue provisional findings early next year.
Sainsbury's and Asda have both said they believe the CMA will not insist on a level of store disposals that will make the deal unpalatable.
By combining, they aim to generate buying power and savings to better compete with the fast-growing discounters, a bigger Tesco after its purchase of wholesaler Booker, and the rise of online shopping, particularly the march of Amazon.
If the deal goes through, both the Sainsbury's and Asda brands will be maintained, with Burnley continuing to lead Asda.
The deal will see Walmart receive £3 billion and take a 42% stake in the combined business. It has the option of selling down to 29.9% after two years and exiting completely after four.
Separately on Thursday, Walmart reported better-than-expected quarterly U.S. comparable sales and raised its earnings outlook for the year.
News by Reuters, edited by Checkout. Click subscribe to sign up for the Checkout print edition.
