2nd Oct 2013 08:38
LONDON (Alliance News) - Tesco PLC Wednesday reported a huge drop in profits for the first half of the year, while supermarket rival J Sainsbury PLC said total sales in the first half of the year were up 5%, driven by strong sales growth in its convenience store business and online sales.
Sainsbury said that total sales in the second quarter of the year grew by 5%, and by 2.1% on a like-for-like basis. It reported first-half total sales growth of 4.4%, and 4% excluding fuel. It said that like-for-like sales in the first half as a whole, was up 1.5%.
Sainsbury Chief Executive Officer Justin King told journalists in a conference call that with like-for-like guidance up 1.4% in the first half of the year, he is comfortable with sticking by like-for-like guidance for the full year of between 1% and 1.5%, and meeting full-year profit expectations.
The supermarket chain also said its own-brand products, including its Taste the Difference range, is growing at more than twice the rate of branded goods, as customers choose own-brand products over branded products to manage their grocery spend amid in a weaker UK economy.
King told journalists that Sainsbury is competitive on its brands and is priced competitively for quality, and said that he is confident that the company can keep up with low-priced supermarkets like Aldi and Lidl.
However, he said that he believes that supermarket rival Tesco is not making fair price comparisons, saying that Tesco's price comparisons are not taking into account differences in quality between products.
In its trading statement, Sainsbury said its online business grew by over 15% in the second quarter and is now worth more than GBP1 billion in annual sales.
Sainsbury said that it opened 31 convenience stores, and five new supermarkets in the second quarter, and also launched 'mobile by Sainsbury's'- a joint venture with Vodafone, which it expects to be a growth stream for the business going forward.
King told journalists that Sainsbury's online and convenience-store businesses are key to sales growth, and said that its convenience stores will soon outnumber its larger supermarket stores. King said that in the first half of the year, Sainsbury opened a total of 50 convenience stores, and that growth to a total of more than 1,000 convenience stores is more than achievable by 2016, if it continues to grow at this pace.
Sainsbury is expected to released its interim results on November 13.
Meanwhile, Britain's largest supermarket chain, Tesco, continues to face challenges both at home and abroad, as it reported a 23% fall in first half profits to GBP1.4 billion, from GBP1.8 billion a year earlier. It said its net profit for the first half was down 34% to GBP820 million, compared with GBP1.2 billion a year earlier.
Tesco said that group sales including VAT were up 0.5%, and excluding petrol were up 0.9% in the first half of the year, on a constant exchange-rate basis.
Since issuing its first profit warning in two decades, two years ago, Tesco has been trying to move away from building big-box stores, to focus on online shopping and convenience stores, a move that Chief Executive Officer Philip Clarke said he will continue to push forward. Tesco said that it will limit its new store openings, particularly in Europe.
The company maintained its interim dividend at 4.63 pence per share.
Similar to better-performing grocer Sainsbury, Tesco also reported strong online growth, with UK online sales up 13%, and online grocery sales internationally up 54%.
It said that improvements in the UK business will be offset slightly by a weaker-than-expected performance in Europe, for its full-year results.
Clarke told journalists in a conference call that Tesco is committed to staying in the European markets despite a weak performance so far this year, where its businesses in Thailand, Ireland and Poland had particularly worsened. Clarke said the food retailer also saw further deterioration in its Turkish business.
However, Clarke said that Tesco expects an improved performance from Europe in the second half of the year, adding that the group has invested a couple of tens of millions of pounds in its Poland business, although the sales performance from that investment has not yet come through.
Tesco confirmed it will fold its existing Chinese operations into a new joint venture with state-owned China Resources Enterprise, while injected a total of GBP345 million in cash in stages. The agreement will see the group take a 20% stake in a 3,000 store business. Clarke told journalists that the new venture will allow Tesco's Chinese business to gain profitability quicker than it would on its own.
The UK supermarket chain recently struck a deal with US billionaire Ron Burkle to exit its loss-making Fresh & Easy business in the US, by offloading 150 Fresh & Easy stores, as well as its food production and distribution centre. Tesco said that after putting the US grocery store chain into bankruptcy on Monday, as part of its planned sale to Burkle's investment vehicle Yucaipa Companies, its balance sheet now has been written down to zero. Tesco said that the total cash cost from exiting its US business will be no more than GBP150 million.
Last week, Tesco launched its own low-cost Hudl tablet, in an attempt to capture the shift in consumer trends toward online shopping and the rising use of tablets and smartphones.
Tesco shares were trading lower Wednesday morning, down 4.00% to 344.75 pence per share. Sainsbury shares were down 1.4% at 384.70 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
Copyright 2013 Alliance News Limited. All Rights Reserved.
Related Shares:
TescoSainsbury's