Convenience stores, online help Sainsbury top forecasts

LONDON Tue Mar 19, 2013 10:42am GMT

A security guard locks the door to a Sainsbury store in central London, December 23, 2012. REUTERS/Paul Hackett

A security guard locks the door to a Sainsbury store in central London, December 23, 2012.

Credit: Reuters/Paul Hackett

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LONDON (Reuters) - J Sainsbury, Britain's third-biggest grocer, beat forecasts for underlying sales in its fourth quarter, with strong growth online and in convenience stores more than offsetting a weaker performance in its traditional outlets.

Online sales and convenience stores are the two fastest growing areas for Britain's supermarkets as shopping habits change, with consumers increasingly using the internet to shop and high fuel prices discouraging trips to town centres and out-of-town malls.

Sainsbury's, which trails by annual revenue market leader Tesco and Wal-Mart's Asda, said on Tuesday its convenience store business was growing at over 18 percent year-on-year, driven by a combination of new selling space and like-for-like sales growth, while online grocery sales were increasing nearly 20 percent year-on-year.

Those channels drove a 3.6 percent rise in its like-for-like sales, excluding fuel, in the 10 weeks to March 16.

That was the 33rd consecutive quarter for underlying sales growth and compared with analysts' average forecast for a rise of 2.3 percent, and growth of 0.9 percent in the third quarter.

It was considerably ahead of a fourth-quarter like-for-like sales fall of 4.1 percent reported by fourth-ranked grocer Wm Morrison last week and analysts' expectations that Tesco will next month post a flat to small drop in its fourth-quarter like-for-like sales.

Sainsbury's chief executive Justin King said the firm had won market share and was well positioned to continue to outperform rivals in its new financial year, even though he expected the economic environment to remain tough.

Shares in Sainsbury's, up 21 percent over the last year, were up 2.6 percent at 375 pence at 09:48 a.m. British time, valuing the business at 7.09 billion pounds.

"Sainsbury ... has quite materially outperformed its major supermarket peers in the UK through its last quarter," said Shore Capital analyst Clive Black, who nudged up his 2012-13 pretax profit forecast to 750 million pounds.

After stripping out inflation Sainsbury's recorded volume growth for the first time since the Christmas quarter in 2009.

Last month Asda said it had seen positive like-for-like sales volumes for the first time in three years.

Sainsbury's, whose market share currently stands at about 17 percent, has also benefited from the success of its "Brand Match" pricing initiative, growth of own-brand sales and a big push into non-food areas such as clothing and home accessories.

And unlike Tesco and Asda it has not been implicated in the horsemeat scandal, with none of its products testing positive for equine DNA.

Some analysts say Sainsbury's is vulnerable to a recovery at Tesco, which has invested 1 billion pounds in a revival plan following a dismal Christmas in 2011 which led to its first profit warning in 20 years.

Last week Tesco launched a "Price Promise" campaign which compares at its tills the overall cost of a basket of branded, own-label and fresh food items with the same or equivalent products of rivals.

King said Sainsbury's had no plans to extend its "Brand Match" promotion to own-label products.

"We think the strength of 'Brand Match' is precisely that it is brand match. You've already seen some significant conversation around Tesco's price match as to how on earth one truly and fairly compares own-label," he said.

Britain is teetering on the brink of a third recession in four years and consumers are fretting over job security, wages growth not keeping up with inflation and government cuts.

With Chancellor George Osborne delivering his budget speech on Wednesday, King called for a national insurance tax holiday for new employees and other job creation measures.

Some 26 percent of Sainsbury's equity is owned by the Qatar Investment Authority, which was said by a newspaper on Sunday to be planning a bid for British clothing and food retailer Marks & Spencer.

(Reporting by James Davey; Editing by Mark Potter and Greg Mahlich)

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