Sainsbury's reports 18.5% rise in profits
SUPERMARKET Sainsbury’s today reiterated caution over second half sales growth as it reported an 18.5% rise in profits for the first six months of the year.
Te UK’s third biggest grocery chain posted underlying profits of £307 million after sales rose 5.7% on a like-for-like basis in the 28 weeks to October 3.
Having previously warned that easing food inflation would slow sales growth, the group confirmed market growth was expected to fall back in a challenging environment.
Shares rose 2% after today’s profits figure bettered the £300 million expected in the City.
Yesterday, market share data indicated that the retailer’s resurgent sales performance in recent months may be coming to an end.
Research from Nielsen suggested Sainsbury’s suffered the lowest sales increase among the big four chains in the three months to October 31, with market share growth also easing as Tesco returns to form.
Sainsbury’s had emerged as a surprise winner in the recession as it tempted shoppers away from Tesco and more expensive grocers, led by successful advertising campaigns such as Feed your Family for a Fiver.
It is in its fifth year of like-for-like sales growth, with consistent growth above its medium term targets of 3% to 4% in recent quarters.
The 5.7% rise in half-year comparable sales, excluding VAT, compares against 3.9% a year earlier.
But it faces a tough challenge to maintain the sharp rises in sales seen over the past year as food prices ease back and the expected economic recovery arrives.
Chief executive Justin King said: “As we enter the second half we expect the economic environment to remain challenging and market growth to slow due to reduced food price inflation.
“We remain confident that our universal customer appeal means we are well positioned to perform in this environment.”
The firm, which rings up more than 18.5 million sales through its tills each week, is hoping to better compete in the non-food area as food sales come under pressure.
It said non-food was growing at a rate of two-and-a-half times that of food as it ramps up store expansion plans.
Sainsbury’s increased its store space by 3% in the half-year and is spending £2 billion on expansion in the two years to 2011 to grow space by 15%.
The supermarket has been in the takeover spotlight recently over speculation it was once more in the sights of its major Qatari investors.
Sainsbury’s shares leapt around 20% during one session after market talk suggested the Qatar Investment Authority sovereign wealth fund was building up its 26% stake with a view to a full bid.
But the rumour appears to be unfounded and shares quickly retreated.
