Sainsbury's posts 18.5% rise in profits

UK supermarket giant Sainsbury’s posted an 18.5% rise in profits today as its efforts to hike sales and cut costs paid off.

UK supermarket giant Sainsbury’s posted an 18.5% rise in profits today as its efforts to hike sales and cut costs paid off.

The retail chain, which rings up more than 18.5 million transactions each week, topped analyst forecasts with underlying pre-tax profits of £307m (€340m) for the 28 weeks to October 3.

Its shares gained 4%, despite Sainsbury’s reiterating warnings over second half sales growth as food inflation falls back.

The UK’s third biggest grocery chain reported like-for-like sales – excluding fuel, but including VAT – up 5.7% in the half-year.

However, 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.

Justin King, the group’s chief executive, also rebuffed data yesterday that suggested its resurgent sales performance was coming to an end.

Research from Nielsen showed 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.

Mr King said: “We are still winning market share.”

Sainsbury’s is enjoying its fifth year of like-for-like sales rises, with consistent growth above its medium-term targets of 3% to 4% in recent quarters.

It has emerged as a surprise winner in the recession, tempting UK shoppers away from Tesco and more expensive grocers, led by successful advertising campaigns such as Feed your Family for a Fiver.

Its hike in half-year comparable sales marks a significant increase against 3.9% a year earlier, while it has also benefited from cost cutting by taking measures such as more self-scan checkouts.

Sainsbury’s faces a tough challenge to maintain the performance as food prices ease back.

Mr King added: “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.”

One welcome side-effect of easing food price inflation for the group has been an increasing trend for shoppers to “treat themselves” with discretionary purchases, according to Sainsbury’s.

The firm is also hoping to offset any food pressures by better competing with rivals in the non-food area.

Its TU clothing brand recorded one million transactions in a week for the first time since launch five years ago.

Sainsbury’s now also has lifestyle brand TU Home and introduced its non-food offering online for the first time in July.

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 £2bn (€2.2bn) on expansion in the two years to 2011 to grow space by 15%.

Retail expert Freddie George at Seymour Pierce said: “Although the interim results came in at the top end of expectations, there will be some nervousness arising from the company’s recent sales performance.”

Sales growth has slowed markedly from 7.8% in the first quarter, to 5.4% in the second.

It has also been in the takeover spotlight recently over speculation it was once more in the sights of its major Qatari investors.

Sainsbury’s shares leapt about 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 has faded, leading to a retreat for the shares.

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