Wednesday May 14, 12:27 PM
J Sainsbury FY profit up 28 percent but says market tough UPDATE
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LONDON (Thomson Financial) - J Sainsbury Plc, the UK's third biggest supermarket group, reported an expected 28.4 percent increase in full year underlying pretax profit, driven by increased sales and an improved
operating margin.
However, chief executive Justin King cautioned that consumer budgets are 'clearly under pressure' and he expects the market to remain 'intensely competitive'.
'We will continue to focus on developing our offer in line with changing customer requirements and on driving further operational savings. This will ensure we continue to make progress in the year ahead,' he said.
Sainsbury (LSE: SBRY.L - news) 's announced plans to launch a non-food online business in the first half of 2009/10. Some 15 million pounds will be invested in the project in the 2008/09 year.
The group also revealed that its 117,000 colleagues will share an annual bonus of 47 million pounds.
For the year to March 22 2008 the group made an underlying pretax profit of 488 million pounds.
This compares to analysts' forecasts ranging from 467 million pounds to 510 million pounds, with a consensus of 485 million pounds, and is up from 380 million pounds last time.
Total retail sales increased 5.8 percent to 19.3 billion pounds, while like-for-like sales, excluding petrol, were up 3.9 percent.
Sainsbury's has achieved 13 consecutive quarters of like-for-like sales growth. Since March 2005 it has achieved 2.7 billion pounds of sales growth under its 'Making Sainsbury's Great Again' (MSGA) initiative, including 700 million pounds of non-food sales -- ahead of the group's 2.5 billion pounds target.
The retailing underlying operating margin increased to 3.0 percent from 2.54 percent.
'We have good momentum as we now focus on taking Sainsbury's from recovery to growth,' said King, who joined the group in 2004.
'Achieving the MSGA targets has provided a firm base for ongoing sales and profit growth and new space development.'
In May 2007 King outlined a number of new targets, which build on the group's recovery.
However, industry data suggests Sainsbury's has lost market share in recent months as customers switch to supermarkets they believe to be more value oriented.
Sainsbury's did not provide an update on current trading as it plans a first-quarter statement on June 18.
But despite the tough climate, King stressed his belief that food, and particularly quality food, tends to be quite resilient in an economic downturn.
'People, if they are managing their household budgets more tightly, tend to trade out of eating out of home to eating in home,' he told reporters. 'I'm sure that dynamic will be with us if we keep seeing household budgets squeezed.'
The CEO also explained that the level of food inflation Sainsbury's is currently experiencing is 'significantly below' the level of the UK government's official data.
On Tuesday the Office for National Statistics (ONS) said food prices were up 6.6 percent over the year to April 2008 -- the highest rise since the Consumer Price Index (CPI (NYSE: CPY - news) ) was first used as a measure for inflation in 1997.
But King said food inflation in Sainsbury's financial year to March 22 was 'around 2 percent'.
'We think some of the measures of inflation are over-reading,' he said.
'They're over-reading because they do not pick up the pricing activity of grocers fighting hard for market share and sales growth, they don't pick up promotional activity -- the market is much more promotional and has been now for six to nine months... and I don't think they pick up things like vouchering activity.
'Real inflation and therefore the real challenge in household budgets is perhaps less than is being reported.'
A final dividend of 9.0 pence is proposed, up 22.4 percent, making a full year payout of 12.0 pence, up 23.1 percent.
This is payable from underlying basic earnings per share of 19.6 pence versus 14.7 pence.
Sainsbury's has not carried out a formal valuation of its property this year. However, finance director Darren Shapland estimated it at 8.0 billion pounds to 8.6 billion pounds.
Shapland said he expected analysts to trim year to end-March 2009 consensus underlying pretax profit forecasts of 577 million pounds by about 25 million pounds to take account of the investment in the non-food online venture and last month's 1.2 billion pounds property joint venture with British Land Co Plc.
At 11:47 a.m. shares in J Sainsbury were down 11 pence, or 3 percent, at 378-3/4 pence valuing the business at 6.59 billion pounds.
Last year, the Qatar Investment Authority (QIA) made a 600 pence a share indicative approach for Sainsbury but talks collapsed in November (Frankfurt: A0S9N7 - news) . It holds a 25 percent stake and is now free to make a fresh approach. The Sainsbury family still hold an 18 percent stake in the business.
Brokers were divided on the group's prospects. Seymour Pierce upgraded its recommendation from 'hold' to 'buy'.
It argues Sainsbury's has a great opportunity to expand in non food and develop its multi channel activities and potential for cost savings and efficiency gains, particularly in logistics. It also reckons QIA are likely to come back with a higher offer.
However, Panmure Gordon repeated its 'sell' stance, stating: 'We don't think that Sainsbury was built for these times.'
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