The recovery of supermarket chain Sainsbury’s exceeded expectations today after the group posted its fifth quarter of sales growth in a row.
The retailer, buoyed by the success of its Try Something New campaign, weighed in with a like-for-like sales rise of 5.3% for the12 weeks to last Saturday, against hopes in the City for a figure closer to 4%.
Chief executive Justin King said Sainsbury’s had attracted an additional one million customers to its stores in the past six months, as the chain benefits from improvements made in the first year of its recovery plan.
Mr King said: “The sales growth announced today shows that customers are noticing the many improvements we have been making to our business.”
Today’s update carried extra significance as analysts believed annual sales growth would be harder to achieve because of comparisons with the start of the Making Sainsbury’s Great Again recovery plan a year ago.
But like-for-like sales growth showed an improved trend, with today’s figure of 5.3% bettering the 5.2% seen in the previous quarter and the 2.1% achieved in the first half of the financial year.
Including petrol sales, like-for-like growth stood at 5.7%, while sales across the group improved 6.7%.
Recent data from research group TNS showed Sainsbury’s accounted for 16.2% of grocery sales in the UK, just behind second-placed Asda but a long way from the 30.4% controlled by industry leader Tesco.
As well as the benefit of its Try Something New Today campaign – advertised by celebrity chef Jamie Oliver – Sainsbury’s has reported higher sales of organic produce and a surge in demand for its premium Taste the Difference range.
The Sainsbury’s fightback – following the first loss in its 135-year history – has included the recruitment of more staff and investment in prices, a move which resulted in a 2.2% fall in grocery prices over the past quarter.
As part of the Making Sainsbury’s Great Again initiative, the chain aims to add £2.5bn to total sales by March 2008.
Simon Proctor, an analyst at Charles Stanley stockbrokers, said the problems experienced by rival Morrisons in converting former Safeway stores may have been a factor in some of the improvement.
He added: “With the company now trading well against reasonably demanding comparative figures, it is difficult to see sales momentum slowing in the short-term.”
Despite the sales growth, Rhys Williams of Seymour Pierce stockbrokers kept his profits forecast for Sainsbury’s unchanged as he pointed out that supply chain costs were still high and price deflation was running at 2.2%.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, added:
“Despite another strong set of sales numbers, which outstripped even the traditionally strong Christmas period, and the accompanying upbeat statement from the chief executive, there are too many negatives weighing on the stock.
“The ultimate plan remains some way off and the market remains highly competitive – it cannot and will not wait for Sainsbury to complete its turnaround.
“Yet another price war looms which will keep pressure on margins and the growth needs to be maintained to stand still.”
References: EGi News 29/03/06
