13th Nov 2013 17:50
LONDON (Alliance News) - UK supermarket J Sainsbury PLC Wednesday said its market share had reached the highest level for a decade, as it kept outperforming its main rivals with strong sales and profit growth in the first half of the financial year.
The third-biggest UK supermarket behind Tesco PLC and Wal-Mart's Asda, raised its interim dividend to 5 pence, from 4.2p, as it reported a 9.1% rise in pretax profit to GBP433 million for the 28 weeks to September 28, from GBP397 million a year earlier. Total revenue rose to GBP12.68 billion, from GBP12.16 billion, driven by its own-branded products, its non-food business and key growth areas like online and convenience stores.
Like-for-like sales rose 1.4%, the 35th consecutive quarterly increase according to the company. It said its market share of 16.8% for the year to October 13 is its highest for 10 years.
However the group said that it expects lower like-for-like sales growth in the second half of the year, due to tougher comparable figures a year earlier. Executives also stressed that the consumer environment remains very tough with customers unwilling to splash out on items, although Sainsbury expects to make further market share gains.
Chief Financial Officer John Rogers said in an interview that the consumer situation is likely to continue through the key Christmas trading period, although Chief Executive Justin King said the supermarket thinks it will do well because of the strength of its own brands.
"Our Taste the Difference range is likely to be strong, and I think it will be an own-label Christmas too. Our promotions will reflect that in comparison to branded products," King told journalists.
The supermarket chain said that sales of its own-brand product range 'by Sainsbury's' grew at twice the rate of branded goods in the first half of the year, helped by a relaunch of the product range. Its premium own-branded range 'Taste the Difference' reported double-digit growth during the period.
It's now revamping its value own-brand range. "We are relaunching designs for our own label (basic range) as we speak. We have already completed around a third of the range and we have 15 new products coming into the range... there is a lot of activity coming into basic," King said, adding "we are also looking at non-food items."
Sainsbury's non-food business, which sells things like clothes, homewares and electrical goods, also continues to be a success story, growing at around twice the rate of food.
Sainsbury's has seen a revival in its fortunes over the past couple of years after many years of losing market share to its bigger rivals.
Morrison, the fourth-biggest supermarket in the UK, last week reported lower like-for-like sales for its third-quarter. It is lagging because it has a much smaller presence in growing areas like online and convenience stores. Tesco also reported a decline in like-for-like sales in its most recent reporting period.
Sainsbury said that although it was not involved in the horse meat scandal earlier this year, unlike other grocer rivals including Asda, Tesco, Iceland and Lidl, it still felt the kick-on affect from consumers.
"The trust debate is all about sourcing, and although we were not involved, we still had to rebuild the trust of our customers. We made a commitment back in 2011 that we would double our British sourcing by 2020, and we are making great progress. At the moment we are working with suppliers to extend seasons, for products like strawberries for example," said King.
Rogers said Sainsbury would continue improving its online and convenience store operations as it expects those to continue to be a key growth driver going forward.
The group's online business reached GBP1 billion in annual sales in the second quarter, and has risen 15% in the first half of the year, with orders regularly exceeding 180,000 a week.
Sainsbury recently announced plans to open an online fulfilment centre in Bromley-by-Bow to help meet growing demand for its online grocery service in London and the South East. It said that when fully operational, the new facility will allow it to serve an additional 20,000 customers each week.
During the first half of the year the group opened 393,000 square foot of new space, including six supermarkets, 50 convenience stores and two extensions.
King said that he stands by the rate of opening two convenience stores a week going forward.
"It is sustainable. We come up against Tesco quite a lot, but we are comfortable in the rate of opening going forward," said King.
Kind said that understanding exactly what its consumers are buying in store is a crucial part of its success, hence the importance of the data it collects from its nectar points card.
"Understanding what they are buying in particular stores is crucial, particularly with our convenience stores estate. For example is it more ready meals or base ingredients. Then we can determine what to put more of in certain stores," he said.
The supermarket group took a property writedown of GBP92 million for between 15 and 20 land sites on which it decided it won't now build supermarkets.
"This particularly applies to edge-of-town sites that we decided are no long economically viable, as there are other schemes coming up around those areas. It was a one-off impairment," John Roger told a press conference Wednesday.
The company also booked a one-off provision of GBP13 million for a commercial item. Executives declined to say what it was for as doing so might affect any legal proceedings concerning the item. In its statement the company said it is "defending its position".
Rogers would only say the item was nothing to do with the Advertising Standards Authority and the supermarket hopes to be able to have clarity on the matter within the next 12 months.
Sainsbury said that it sees a lot of opportunities going forward for its new businesses, including banking products, pharmacies, and its new joint venture with Vodafone called 'Mobile by Sainsbury's'.
"They are not making money yet, but the scale and profit potential is promising," said King.
The group said that it is on track to take full ownership of its Sainsbury's Bank at the end of January 2014.
Sainsbury said that its balance sheet remains strong, and said that it now expects its year end debt to be around GBP2.3 billion to GBP2.5 billion, including the purchase of Sainsbury's Bank.
Sainsbury shares closed up 1.3% at 404.0808 pence per share Wednesday afternoon.
By Rowena Harris-Doughty and Steve McGrath; [email protected]; @rharrisdoughty
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