Sainsbury outshines Tesco with profit rise

Published Nov 14, 2012

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London - J Sainsbury, Britain's No. 3 supermarket, beat forecasts with a 5.4 percent rise in first-half profit, helped by the development of its online and convenience stores business, the two fastest growing grocery channels in the UK.

The group, which has enjoyed 31 consecutive quarters of underlying sales growth, is continuing to outshine industry leader Tesco, which in October posted a 12.4 percent fall in first half UK trading profit. No. 2 player Asda is due to update on its third quarter on Thursday.

Sainsbury said on Wednesday it made profit before tax and one-off items of 373 million pounds ($593 million) in the 28 weeks to September 29.

That compares with analysts' consensus forecast of 371 million pounds, according to a company poll, and 354 million pounds made in the same period in 2011.

First half sales rose 4 percent to 13.37 billion pounds as Sainsbury's outperformed the market, increasing its share to 16.7 percent, the highest for nearly a decade.

In October the firm posted better-than-expected second quarter underlying sales growth.

Sainsbury's said online sales grew at over 20 percent and it opened 49 convenience stores during the period.

“Certainly if you compare our performance with all our major competitors we're doing the best both in sales and profit,” Chief Executive Justin King told Sky News.

Industry data has shown Sainsbury sustaining market share gains from rivals into the second half as it also benefits from the success of its “Brand Match” pricing initiative, higher penetration of own-label food ranges and increased sales of non-food products.

The group has also enjoyed a boost to its profile from its sponsorship of the London Paralympic Games.

“Whilst the wider economic situation remains challenging, we are well positioned,” said King.

Though Britain is out of recession many retailers are still finding the going tough as consumer spending is held back by wage increases below inflation, which hit a five-month high in October, and government measures designed to cut national debt.

Grocers traditionally cope better in tough economic times thanks to their focus on essential goods, but some of them have also struggled.

Last week an industry survey said British retail sales slowed sharply in October, while Morrisons, the UK's No. 4 grocer, posted a 2.1 percent fall in third quarter underlying sales, highlighting high levels of promotional activity. Earlier in November electrical retailer Comet collapsed into administration, threatening 6,600 jobs.

Sainsbury's shares are up 14 percent over the last year, partly buoyed by the return of speculation regarding a possible renewed bid attempt from its 26-percent Qatari shareholder. The stock closed on Tuesday at 347.2 pence, valuing the business at around 6.56 billion pounds.

Sainsbury's is paying an interim dividend of 4.8 pence a share, up 6.7 percent. - Reuters

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