Troubled store group Woolworths has reported a further fall in underlying sales and warned it expects the UK trading environment to continue to be tough.
In the 19 weeks to June 10, the 806-store main chain saw sales on a like-for-like basis, which strips out the impact of new and closed space, tumble 6.7 per cent.
They had fallen 3.9 per cent in the year to the end of January.
Trevor Bish-Jones, chief executive, said in March he was budgeting for "around flattish" like-for-like sales for the current year to the end of January 2007.
Nick Bubb, analyst at Evolution Securities, said the retail numbers were "just as bad as we feared", while Richard Ratner, analyst at Seymour Pierce, described them as "awful".
But Mr Bish-Jones remained upbeat despite the tough start to the year.
"We are where we are thus far, but for us everything is to play for in the second half and we've got a lot of activity coming along that will stimulate the business as we go into the Christmas season."
Of the 6.7 per cent decline, 0.5 per cent is due to 54 stores having been closed for periods to enable their refit to the 10/10 format.
Woolworths said their sales performance post refit has been "encouraging", with the uplift exceeding that achieved in prior years. A similar number of stores are scheduled to be refitted over the remainder of the year.
The retailer noted the entertainment categories performed poorly, blaming "a weak market in tandem with competitive pressure". But it said the outdoor living and outdoor toy categories did well. Sales of Easter eggs saw a positive result despite the difficult market.
"We anticipate that the retail environment will continue to be challenging. In the short-term, we expect England's participation in the World Cup to reduce overall high street footfall," Woolworth said.
"Against that background the board will remain focused on controlling costs and generating cash."
Third party sales at Entertainment UK, Woolworths' entertainment wholesaling business, were up 21.2 per cent over the 19-week period.
2entertain, the group's 40 per cent owned entertainment publishing joint venture with BBC Worldwide, saw its sales increase four per cent.
Total group sales fell 0.4 per cent over the period.
Since Woolworths - valued at around £450 million - demerged at 25 pence from Kingfisher in 2001 it has been the subject of takeover speculation.
In March last year talks took place with Apax Partners regarding a possible £837 million offer, but the private equity group walked away two weeks later.
Rumours of residual private equity interest have persisted, while more fanciful talk has suggested WH Smith may bid. Baugur Group, the acquisitive Icelandic group, has a ten per cent stake but is not thought to be considering an offer.
"We treat Baugur in the same way as we treat any other investor," said Mr Bish-Jones. "They've taken a stake in the company, we're very comfortable having them on the register."
Chairman Gerald Corbett said Woolies continued to become more efficient, with stocks currently £15 million below last year's level.
He added: "The first half results will carry the costs of the stock and supply chain measures which have been initiated to generate improved performance particularly over the crucial Christmas trading period.
"It is also important that we continue to invest in the business."
Earlier this year Woolworths lost a contract to supply Tesco with entertainment products and Mr Corbett said the firm was seeking new customers to replace lost business.
Mr Bubb said that "despite the typical confidence of management", he was cutting his forecast for current-year profit before tax and exceptional items from £40 million to £30 million and is assuming the main chain will make no profit this year on sales of £1.8 billion.
He reckons the group's first half loss will widen from £36 million to £60 million, giving "a mountain to climb in the second half".
Mr Ratner is sticking with his full year profit forecast of £35 million.
"Still a case of 'excellent management: bad company' - in fact, Woolies is firmly in our 'living dead' category," he said.