Sainsbury’s Outshines Tesco with First-Half Profit Gains

on Nov 15, 2012
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J Sainsbury (LON:SBRY), UK’s third-largest supermarket company, beat forecasts with a rise of 5.4 percent in first-half profit on the back of its online and convenience stores business, the two fastest growing grocery businesses in the UK.

**Quarter Results**
First half sales increased by 4 percent to £13.37 billion as Sainsbury’s outperformed the market and increased its share to 16.7 percent, the highest in more than ten years. Profit before tax for the company was £373 million, beating analysts forecast of £371 million and £19 million more compared to last year’s profit for the same period. According to the interim report, online sales grew at about 20 percent and 49 new convenience stores were opened.

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“Sainsbury‟s 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 15.2 pence, return on capital employed remains unchanged at 10.9 per cent and our interim dividend is 4.8 pence per share, up 6.7 per cent.” said David Tyler, Chairman of the supermarket group.

Sainsbury’s outshone industry leader Tesco, which last month disappointed shareholders with a 12.4 percent fall in first-half UK trading profit. The second biggest supermarket Asda is expected to release its third-quarter results today.
**“Challenging Year” Ahead**
Sainsbury’s warned that the grocery market will remain “challenging” but assured the company is well-positioned to deal with the difficulties.

!m[Chief Executive Justin King Urges Revamp on National Insurance Policy](/uploads/story/825/thumbs/pic1_inline.png)Price inflation of food is expected to increase in the following months, with shoppers buying less, topping-up more frequently and switching to own-label items to save money, CEO Justin King said on a conference call with analysts. “As we stand today, inflation and wage awards are playing a bit of a draw, the direction of travelling inflation is up and we think for the next few months that is probably the case on food,” King said on the call. “So we’re going to see a further reduction in household budgets.”

According to news agency Bloomberg, poor harvests overseas and wet weather in the UK have put upward pressure on prices, while rising energy costs have trimmed the discretionary budget of many Britons. “Christmas is expected to remain highly competitive,” opined Kate Calvert, an analyst at Seymour Pierce in London, as quoted by Bloomberg. “Yesterday’s rising inflation number is a reminder that consumer spending will remain under pressure with increased fuel prices this winter yet to come.”
An industry survey published last week showed that retail sales in Britain slowed sharply in October, while Morrisons, UK’s fourth largest grocer, reported a 2.1 percent fall in third quarter underlying sales. In November retailer Comet was placed in administration, threatening 6,600 jobs in the UK.
On Wednesday shares in Sainsbury’s lost 1.93 percent to £3.4049.
**Sainsbury’s Chief Here to Stay**
Mr King discredited rumours of him leaving Sainsbury’s: “I have no plans to leave in the next year. I do understand that after a person is in the same job for eight or nine years and doing a good job that speculation arises. I am very happy at Sainsbury.”
Mr King will have been chief executive at the company for nine years in March 2013 and is the longest-serving chief executive among Britain’s big four supermarket groups.
The CEO also urged George Osborne, the chancellor in the UK, to ease the national insurance burden on employees to give a boost to jobs growth. According to Mr King the National Insurance is a “tax on jobs” and the current government is not doing its best to encourage better employment numbers. Suggestions on how to fix the policy include a 12-month national insurance holiday for new employees and for any employees under the age of 25. Such measures would “tip the scale in favour of a new employee, and what you will get is a lot of companies saying: I will take that little risk”, Mr King said.

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