Sainsbury's, Britain's second biggest supermarket, has reported a drop in quarterly underlying sales and cautioned that it did not expect market conditions to improve any time soon.
The firm agreed a £1.4 billion takeover of Argos-owner Home Retail in April.
It said today that sales at stores open over a year fell 0.8%, excluding fuel, in the 12 weeks to June 4, its fiscal first quarter.
That was slightly better than analysts' average forecast of a fall of 1.4% but represented a step back from a rise of 0.1% in the fourth quarter of the supermarket's last financial year, its first quarter of growth in over two years.
"Market conditions remain challenging. Food price deflation continues to impact our sales and pressures on pricing mean the market will remain competitive for the foreseeable future," the supermarket chain's chief executive Mike Coupe said.
But he added that he still expected Sainsbury's to outperform its major peers.
Sainsbury's has shown greater resilience to competition from German discounters Aldi and Lidl than its traditional UK rivals - market leader Tesco, Asda and Morrisons.
All of Britain's so-called big four grocers have been engaged in a price war amid fierce competition from the German discounters.
As well as the supermarkets' price cuts sector deflation has been fuelled by foreign exchange moves and commodity price falls.
Sainsbury's strategy is focused on lower regular prices, better product quality and availability and improved customer service.
However, it has still reported two years of profit decline in a row and its shares have fallen 7% over the last month.
Sainsbury's proposed purchase of Home Retail is currently being considered by the competition regulator.
Last month the UK Competition and Markets Authority said it would decide by July 25 whether to launch a full investigation.