King signs off as Sainsbury’s beats City forecasts

Outgoing chief executive Justin King played down the gain in market share by what he called the 'German discounters'. Picture: PA
Outgoing chief executive Justin King played down the gain in market share by what he called the 'German discounters'. Picture: PA
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SAINSBURY’s rang up a 5.3 per cent rise in annual profits yesterday in Justin King’s trading swansong, but the supermarket giant’s shares fell on its weakest profits and sales growth for nine years.

However, King, who became chief executive in 2004 and hands over to commercial director Mike Coupe in July, was dismissive of talk of a price war in the sector.

As established players try to resist the market share gains of what he called the “German discounters”, Aldi and Lidl, both Morrisons and Tesco have announced major price promotions.

Morrisons has said it will invest £1 billion on prices over three years, but the Sainsbury’s boss said “price skirmishes” had been part of the “cut and thrust” of the sector throughout his career. “We’ll do what we’ve always done, which is quietly focus on looking at the detail, the 15,000 prices we audit every week, making sure we stay competitive,” he said.

King added that Sainsbury’s focus on quality food sourced ethically, rather than simply price, would keep sales moving, alongside the group’s Nectar loyalty card and Brand Match price promise.

However, he admitted his successor would face macro headwinds. “While the general economic outlook is showing some signs of improvement, conditions in the food retail sector are likely to remain challenging for the foreseeable future as customers continue to spend cautiously,” he said.

Sainsbury’s lifted underlying pre-tax profits to £798 million in the 12 months to 15 March, which was ahead of City consensus forecasts of £782m. It was the ninth consecutive year of profits growth under King, but same-floorspace annual sales growth of 0.2 per cent was the lowest for nine years.

On the stock market, shares in the group initially rose. But they closed off 9.5p, or 2.8 per cent, at 323.9p on digestion of the slowing growth behind the record profits.

The damage was done in the fourth trading quarter, when like-for-like sales slid 3.1 per cent. Sainsbury’s warned that this financial year’s sales performance would be similarly flat, while analysts expect Coupe’s first set of annual results as boss in 2015 to show a fall in profits to £762m.

The group’s market share has held up at 16.8 per cent while others have declined amid the advance of the discounters. Sainsbury’s results showed a £92m hit as it scrapped planned store developments – though it still opened 13 supermarkets during the year and extended six, adding a million square feet of space.

There is now a much greater focus on its network of smaller convenience stores, with 91 opened in the year, taking their total number above the number of supermarkets for the first time, and reaching sales of £1.8bn. Meanwhile, annual online grocery sales rose 12 per cent to more than £1bn, while general merchandise and clothing sales were growing at twice the rate of food, with the Tu clothing brand generating revenues of about £750m.

Total underlying sales were up 2.8 per cent at £26.4bn. Sanford Bernstein analyst Bruno Monteyne said: “Sainsbury’s offers this ‘quality food for the masses’ very successfully and the actions of Morrisons and Tesco moves them further away from the quality sector, further strengthening Sainsbury’s differentiation.”