Sainsbury’s reports sharp profit growth for the year

Sainsbury's has seen a hefty increase in underlying profits, from £488m last year to £543m in the year to 21st March. Total sales grew 5.7 per cent to £20.38bn and same store sales, excluding fuel, were up 4.5 per cent.

The group also differentiated itself from the opposition by raising its dividend by 10 per cent from 2008, upping it to 13.2p per share.

Announcing the results, chief executive Justin King put the improvement down to the expansion of its basics range, which is now its quickest growing area, with sales of the brand up more than 60 per cent in the first quarter of the year. Its 'switch and save' campaign has encouraged shoppers to trade down to its lower-priced own-label brands.

The chain is primarily taking market share from chief rival Tesco with the strategy, but is seeing increasing competition from discounters like Lidl and Aldi.

King said of the current retail environment "Over the past 12 months consumers have become increasingly 'savvy' and have responded to rises in the cost of living by making significant changes to the mix of products they buy."

Pre-tax profits at the chain actually fell 2.7 per cent to £466m, losing £124m on the revaluation of 38 of its sites, jointly owned with British Land.

WHAT THEY ARE SAYING
Ian King, the Times: "The latest confidential industry switching data - seen by this newspaper - suggests that Sainsbury's is losing sales not only to discounters Aldi and Lidl but also, more meaningfully, to Asda. It is not a problem, for now, as Sainsbury's has snaffled some £29 million of sales from Tesco during the past 12 weeks - more than four times the amount that has gone to Asda. However, it will be interesting to see how Mr King tackles the issue longer term."

Credit Suisse, Reuters: "We still do not think the shares look particularly attractive. While we still retain some concerns over elements of the strategy (such as non-food expansion), our biggest issue remains valuation - even on our 'high' 2009/10 estimates." ·