Sainsbury’s adds to Tesco gloom, putting bigger rival in the shade

SAINSBURY’S has piled further pressure on larger rival Tesco after delivering a better-than-expected rise in sales for the second quarter, boosted by its sponsorship of the Paralympic Games.

The UK’s third-largest supermarket chain said it opened 28 convenience stores during the 16 weeks to 29 September, taking the total for the first half of the year to 49, and added that it was sticking to its target of opening one to two small-format stores a week.

Like-for-like sales, excluding fuel but including VAT, rose 1.9 per cent, up from the 1.4 per cent growth recorded during the first quarter.

Kate Calvert, an analyst at Seymour Pierce, said: “This is ahead of market expectations and we suspect will be a good performance relative to its peers.”

The upbeat trading statement came as market leader Tesco revealed that like-for-like sales, also excluding fuel but including VAT, grew just 0.2 per cent during its Q2. Although its growth lagged behind Sainsbury’s, the performance marked an improvement over the first quarter, when sales fell 1.4 per cent.

The return to sales growth was not enough to prevent Tesco from suffering a 12 per cent decline in group pre-tax profits to £1.7 billion for the six months to 25 August – its first profits fall in nearly 20 years.

UK profits at the grocery giant fell 12 per cent to £1.1bn, while its international arm saw profits tumble 17 per cent to £378 million as restrictions on opening hours hit sales in Korea – its largest market in Asia – and the eurozone crisis dented earnings across Europe.

Tesco held its interim dividend at 4.63p and chief executive Philip Clarke said a £1bn investment programme was beginning to pay off, but he admitted more work was needed to turn the business around.

The group has taken on 8,000 extra staff, revamped more than 230 stores and launched a new range of value products in a bid to retain its dominant position in the UK supermarket sector.

Clarke said: “We have been hard at work and I am encouraged by our customers’ initial responses to the changes we have made – but there is much more to be done.”

Shore Capital analyst Clive Black said Clarke was probably less than a quarter of the way through his plans to revitalise the UK chain, adding: “Accordingly, it may take until well into 2013 before we and the market can assess the direction and effectiveness of the plans that management is applying to improve Tesco’s performance.”

Justin King, chief executive of Sainsbury’s, said all the players in the grocery market were fighting hard for customers, “but with 31 consecutive quarters of like-for-like growth, we’ve consistently been a notch ahead of the competition for some time”.

He said the first six months of the year had been “a game of two halves”, with poor weather in the first quarter being followed by the Paralympics in the final three months of the period, which helped raise the group’s profile as a sponsor of the Games.

Sainsbury’s is due to announce its first-half results on 14 November. Analysts expect the group to deliver full-year pre-tax profits of around £748m.