J Sainsbury, the British supermarket giant, today revealed that cost-cutting and sales growth drove interim profits up 19 per cent to £307 million.
The figure was towards the higher end of forecasts which ranged from £296 million to £308 million.
Shares in Sainsbury’s rose 3.14p to 337.9p in early trading, despite the grocer reiterating its warning that falling inflation meant growth would slow in the rest of the year.
Justin King, the chief executive of Sainsbury’s, said that the group’s strategy of growing non-food products such as clothes and DVDs and opening a string of convenience stores was paying off by increasing sales. He also said that measures such as introducing self-check out machines in convenience stores and sourcing more products direct from the Far East was helping to keep costs down.
Total pre-tax profits increased from £258 million to £342 million as overall sales reached £11.1 billion, an increase of 3.7 per cent.
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However, despite the surge in trading in the first half, Mr King warned: “As we enter the second half we expect the economic environment to remain challenging and market growth to slow due to reduced food price inflation.”
Like for like sales, as it revealed at its recent trading statement, rose by 5.7 per cent in the half to October 3. However, market data figures from TNS and Nielsen released yesterday showed that in the past four weeks its sales growth had slowed to 4.2 per cent. Nielsen said that Tesco’s doubled discount on its Clubcards appeared to be winning back market share from Sainsbury’s.
Mr King said: “The market share figures should be taken with a pinch of salt but they are usually directionally correct. We are still winning market share.” Sainsbury’s is rolling out a “coupon at till” scheme, offering those with Nectar cards discounts at the time they check out to all stores by the end of this month.
Mr King also said that the group would continue to expand, adding 15 per cent in new space and creating 10,000 new jobs in the two years to March 2011.
Figures due out this morning are expected to show that British unemployment has risen to 2.5 million, and there are fears that the number of young people out of work may have surged to a new high of one million.
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Mr King said: “The time is right to accelerate our growth plans and in June we raised £432 million to fund faster growth in our store estate and support our circa £2 billion capital expenditure programme in the two years to 2011.”
Sainsbury’s unveiled its results as it steps up its fight against its rivals, Tesco, Asda and Wm Morrison, to win sales in the crucial Christmas period.
Mr King was bullish about Sainsbury’s prospects for Christmas he said: “Not withstanding the pressures consumers are facing, we expect them to buy great food at Christmas. We are significantly increasing our orders for things such as high husbandry meat, like our Norfolk black free range turkeys. We think Christmas will be strong on food and non-food as well, as householders are finding the pressure coming off their weekly shopping budget.”
Supermarkets are chasing the money that shoppers would have spent at collapsed stores such as Zavvi and Woolworths in previous years. This has already led to price battles in the entertainment and toy markets.
Sainsbury’s, Tesco and Asda have held sales on toys, cutting the prices of doll’s houses and toy soldiers in the hope of gaining the market share that was once held by Woolworths.
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Tesco, Britain’s biggest supermarket, doubled the discount available through its loyalty card scheme this year to allow customers to receive their extra money-off vouchers in time for Christmas shopping.
Sainsbury’s and Morrisons also offered improved voucher schemes. Asda has not released a loyalty card, but has provided a series of non-food deals.
Sainsbury’s announced an interim dividend of 4p a share, in line with its policy to pay at 30 per cent of the previous full year dividend.