Food retailer Sainsbury(J) Plc (SBRY.L) Wednesday reported higher profit for the first half ended on October 3, driven by like-for-like sales growth, increased selling space as well as cost efficiency savings. Entering the second-half, the supermarket group said it expects the economic environment to remain challenging and market growth to slow due to reduced food price inflation. The company's Board has approved a higher interim dividend.
Sainsbury reported six-month profit of GBP 252 million or 13.8 pence per share, compared to GBP 170 million or 9.6 pence per share last year. Underlying earnings per share rose 18.6% to 11.9 pence from 10 pence in the prior-year period.
The company's pre-tax profit for the period was GBP 342 million, higher than GBP 258 million in the same period last year. Underlying profit before tax grew 18.5% to GBP 307 million from GBP 259 million in the prior-year period.
Sainsbury also reported six-month period sales including VAT of GBP 11.16 billion, up 3.7% from GBP 10.76 billion a year ago, driven by a combination of strong like-for-like performance and new space, offset by lower fuel prices. The sales growth included a 0.5% benefit from the timing of Easter and a 1.3% contribution from net new space.
Excluding VAT, sales were GBP 10.43 billion, up from GBP 9.94 billion in the prior-year period. Total sales growth excluding fuel was up 7.9%.
Like-for-like sales excluding fuel and including VAT rose 5.7% for the period. Meanwhile, like-for-like sales including fuel were up just 1.9 % due to the impact of lower fuel prices. The company also said that like-for-like sales increased 7% in the first quarter and 4.6% in the second quarter.
Groceries online sales were up 20%, driven by increases in both transactions and items per basket.
Further, the company said that new space excluding extensions contributed a net 1.4% to total sales growth excluding fuel. Gross new space contributed 2.5% to total sales growth, offset by the full year effect of prior year disposals and closures. Sainsbury added a gross 529,000 sq ft of selling area, an increase of 3.2% since last year-end and 5.2% over the 52 weeks ended on October 3. Including the impact of closures, net space reached 493,000 sq ft, an increase of 3% since the start of the year.
Commenting on the results, Justin King, Sainsbury Chief Executive, said, "Tight control on operating costs is enabling further investment in the customer offer and, together with our good sales performance, has delivered further strong profit growth."
Operating profit rose to GBP 357 million from GBP 337 million last year. Administrative expenses were GBP 214 million, down from GBP 225 million in the same period of fiscal 2008. Finance costs also declined to GBP 69 million from GBP 76 million last year.
underlying operating margin was 3.28% for the half year, compared with 3.13% a year ago. As per the company, operational gearing was driven by higher sales volumes and cost efficiency savings. Full-year cost inflation is expected to be at the higher end of the medium-term expectation of 2% - 3% range. More than 75% of this will be offset by cost efficiency savings, the company noted.
Sainsbury's share of Sainsbury's Bank post-tax profit reached GBP 3 million in the first half, compared with GBP 1 million a year ago. Sainsbury's share of post-tax profit for the full year is expected to be slightly higher than the GBP 4 million achieved in 2008-09. Second half profit is expected to be impacted by upweighted investment in customer acquisition.
Further, the company's underlying share of profit from its JV with British Land was GBP 5 million in the first half, and underlying share of profit from the JV with Land Securities was GBP 1 million. The Group expects a broadly similar result for both property joint ventures in the second half.
According to the company, its Board has approved an interim dividend of 4 pence per share to be paid on January 8, 2010 to shareholders on the Register of Members at the close of business on November 20. For 2008-09, the company's interim dividend was 3.6 pence per share.
Going forward, Sainsbury stated that it is on track to grow gross space 15% over the time and sees potential for growth for many years to come. For the full-year, the company expects gross space growth of 6.5% to 7%. Net new stores are expected to contribute over 2% to total sales growth excluding fuel in the full year.
The company said it created over 2,500 new positions in the first half and expects that new store openings and extensions will lead to the creation of 10,000 new jobs in the two years to March 2011. Sainsbury also said that it is on track to achieve its target of 500 apprenticeships for bakers, butchers and fishmongers.
"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. We remain confident that our universal customer appeal means we are well positioned to perform in this environment. In addition, the acceleration of our strategy will deliver sustained long-term growth and value to shareholders," King added.
SBRY.L is trading at 336.30 pence on the LSE, up 8.70 pence, on a volume of 7.32 million shares.
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