London - British grocer J Sainsbury Plc showed its resilience to tough market conditions with a 7 percent rise in first-half profit, contrasting with a decline at market leader Tesco Plc and lifting its shares to a near six-year high.
Sainsbury trails Tesco by annual sales and is battling Wal-Mart Stores Inc's Asda to be Britain's No. 2 grocer, but has enjoyed 35 straight quarters of underlying sales growth, boosting its UK market share to a decade-high 16.8 percent.
Chief executive Justin King said on Wednesday the group was well placed for more growth, even though he cautioned that any recovery in Britain's economy may take time to take effect as consumers' budgets are being stretched by below-inflation wage rises.
The firm is outperforming rivals with a strategy focused on own-brand products and investing in fast-growing online and local convenience store channels.
“It (Sainsbury) has seen off the dual threat of the fast-improving discounter Aldi and the premium Waitrose, giving Tesco a humiliating lesson in how it should be done,” said John Ibbotson, director of the retail consultancy Retail Vision.
“The only question now is how long it can hang on to the hugely talented Justin King.”
Sainsbury's own-brand sales are growing at more than twice the rate of branded goods, while online and convenience stores are the two fastest-growing areas in the grocery sector, as consumers increasingly use the Internet to shop and high fuel prices deter trips to town centres and out-of-town malls.
Sainsbury's online grocery sales rose by 15 percent in the half, while convenience store sales increased over 20 percent.
The group has also benefited from the success of its “Brand Match” price-comparison scheme, along with increased sales of non-food products, especially clothing, kitchen electrical and cookware.
In addition it avoided any involvement in a scandal over foods found to contain horsemeat when they were labelled as containing other meats.
STARK CONTRAST
Shares in Sainsbury, up 16 percent so far this year, were up 2.7 percent at 419 pence by 11:34 SA time, valuing the business at 7.8 billion pounds. The stock rose as high as 410p, its highest since early 2008.
Sainsbury's profit before tax and one-off items reached 400 million pounds ($637 million) in the six months to September 28 - at the top end of analysts' forecasts and ahead of the 374 million made last year.
In stark contrast, Tesco last month posted a 1.5 percent fall in first-half UK trading profit.
According to monthly data from market researcher Kantar Worldpanel, only Sainsbury and John Lewis's Waitrose among Britain's top six grocers are currently resisting pressure from discounters Aldi and Lidl to expand their market share.
Kantar data has Sainsbury as Britain's No. 3 grocer, while Nielsen data shows it has overtaken Asda to be No. 2.
“The key measure is where we are in the eyes of our customers and on important measures like quality, like availability, like service, we're No. 1 and that's why our sales are growing in contrast to most of our grocery competition,” King told reporters.
Sainsbury's first-half sales rose 4.4 percent to 13.95 billion pounds, while sales at stores open more than a year, excluding fuel, were up 1.4 percent and its operating margin rose 7 basis points to 3.47 percent.
Cost savings of 55 million pounds were also eked out.
It did, however, book a 92 million pounds impairment charge following a review of its property pipeline that identified some sites where it no longer wishes to build stores.
Sainsbury's raised its interim dividend by 4.2 percent to 5.0 pence. - Reuters