Resurgent Sainsbury's to reveal leap in profits and plans for Local expansion

Published on Saturday 9 May 2009 14:25

JUSTIN King, the chief executive of Sainsbury's, is expected to update investors on his strategy to take on Tesco in the competitive convenience store sector when he reveals a jump in profits this week.

Analysts expect the supermarket chain to unveil plans for more than 150 smaller Sainsbury's Locals in the north of England and Scotland as the turnaround of the business gathers momentum.

King has recently poached property director Stephen Boyce from Phones 4u to accelerate his store expansion, which was bolstered in March with the acquisition of 24 shops from Co-operative Group.

The food retailer, celebrating its 140th anniversary this year, is tipped to reveal underlying pre-tax profits of 526 million for the year to 21 March, up from 488m in the previous 12 months.

King is regarded as having done a good job of reviving the business. In March he unveiled much better than expected fourth quarter figures, showing a 6.2 per cent leap in like-for-like sales. It has stepped up its promotional activity in the race to grow market share amid the downturn in consumer spending and was recently hailed as the Easter sales winner among the "big four" supermarkets, lifting its share of the market to 16.3 per cent in the three months around the holiday period, according to TNS Worldpanel figures.

Analysts have been impressed that King has not lost market share as customers took their business to budget stores such as Lidl, Aldi and Morrisons.

Sam Hart, retail analyst at Charles Stanley, said: "It is an ongoing recovery process at Sainsbury's. The business was underperforming for a number of years but in the last few years King has managed to get the business back on track. We certainly expect King to focus on the convenience store opening targets. Sainsbury's is under- represented in Scotland so it would not surprise me at all if King was to focus on that geographic region."

King is also likely to be quizzed on any tie-up with Marks & Spencer. Speculation is mounting that a tie-up would allow Rose to become non- executive chairman, paving the way for King to take a similar role in a combined group.

Analysts say a deal would make sense, allowing Sainsbury's to stock M&S-branded food. M&S clothing could also be sold through Sainsbury's stores.

Nick Bubb, retail analyst at Pali International, said: "Its own-label range and marketing edge have turned out to be great strengths, enabling it to attract shoppers looking to save money but also retain quality."