Sainsbury profit growth driven by own-label food

14-Nov-2012 - Last updated on 15-Nov-2012 at 12:46 GMT

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Sainsbury boss Justin King led the retailer to claim its highest share of the UK grocery market in 10 years

Growth in own-label food has helped Sainsbury achieve a 2.5% rise in profits to £405M in the six months to September 29.

Underlying profit before tax climbed by 5.4% to reach £373M.

The retailer’s ceo Justin King told BBC Radio 4’s Today programme: “In the past six months in all of our stores – including supermarkets – we’ve seen strong growth in our own-label: our Sainsbury’s range but also Taste the Difference. And there’s a simple reason for that – it’s the easiest way for customers to save money without compromising on quality.”

King claimed that growth in our own-label sales were “quite a bit better than that of our competitors”.

“The growth in the market today is coming mostly from convenience stores as people shop around more often and from online as people take the convenience of doing a big part of their weekly shop that way. So we have been building those businesses for around 10 years now and that’s partly why our business is doing so well.”

Online sales

Online sales rose by more than 20%, with grocery orders regularly exceeding 165,000 a week, said the retailer.

Also, the convenience business was expanding by one to two stores each week and also experienced nearly 20% year-on-year growth.

Sainsbury claimed its share of the UK grocery market rose to 16.7% − the highest for nearly a decade.

It also posted sales, including VAT and fuel, up by 4% to £13.36bn.

King said the market remained challenging. “If you look at customer data, it will tell you that throughout the past year, they’ve remained tightly in control of the purse strings and quite pessimistic and that remains the case. What we have to do is to help them with that weekly challenge: the weekly grocery shop.”

The retailer said it was 85% of the way through the re-launch of its core By Sainsbury range. That would result in 6,500 new or improved products introduced by April 2013.

Basic earnings per share

David Tyler, chairman, said in a statement: “Sainsbury has made a strong start to the year, delivering continued outperformance in what has remained a challenging market. We have grown our underlying basic earnings per share to 15.2p, return on capital employed remains unchanged at 10.9% and our interim dividend is 4.8p per share, up by 6.7%.”

Meanwhile, City analyst Shore Capital described Sainsbury’s results as “very solid” and “a little above its expectations”.

Shore’s Clive Black and Darren Shirley said: “Looking into 2012/13, we believe there is scope for Sainsbury to modestly pare back its capital investment programme, which will further support the group’s cash flow credentials. We forecast net debt/EBITDA [earnings before interest, tax, depreciation and amortisation] at the year end at a comfortable 1.6x.”

But if market leader Tesco began to regain share from its margin investment programme, then Sainsbury remains “the most vulnerable given the scale of trading overlap between the two groups”, they added.

Shore repeated its ‘hold’ advice on Sainsbury shares.

Sainsbury results – at a glance