Sainsbury's targets land windfall after sales boost

Times may be tough, but Sainsbury's tills are still ringing. It's even making its stores bigger...

Last Updated: 06 Nov 2012

Sainsbury’s CEO Justin King said this morning that quarterly sales were up 4.1% in the 12 weeks to March 22, better than analysts expected and better than the 3.7% jump it managed in the run-up to Christmas. If you throw in fuel sales too, the increase was actually 6%. Overall, the supermarket chain saw total sales jump 3.9% for the full year.

And to celebrate, King has signed a £1.2bn property joint venture with British Land, its biggest landlord. The deal will see 38 British Land-owned Sainsbury’s stores (plus a Waitrose, strangely enough) sold into a 50-50 joint venture between the two companies. Most have been earmarked for expansion or development, so the idea is that Sainsbury’s will get a greater share of the upside if it manages to make the stores more profitable.

In the last year, Sainsbury’s has come under pressure from shareholders - notably tycoon Robert Tchenguiz, who could probably do with the cash after the year his stocks have had – to sell some or all of its huge freehold property portfolio and return the cash to shareholders (which also tends to boost the share price). It still owns about two-thirds of its estate, and the private equity firms sniffing around it last year were apparently planning to sell off a sizeable chunk of that.

Since this joint venture will actually cost the company about £270m, it might seem a strange way of extracting more value from the estate – but King’s plan is to get a bigger stake in the stores that are ripe for expansion, and to sell off the ones that are fully developed.

And if we were Sainsbury’s shareholders, we’d be inclined to trust him. Today’s results mark the culmination of King’s three-year ‘Making Sainsbury's Great Again’ turnaround programme, and sure enough, King has delivered on his promise to increase sales by £2.5bn rise. In fact, he’s done it with room to spare – he’s actually managed a £2.7bn increase. That’s just showing off.

King admitted that ‘consumers are shopping more carefully’, but he still sounds pretty optimistic; he thinks food sales will weather the storm pretty well (premium range Taste the Difference is still selling like hot cakes), and non-food sales are on the up-and-up.

Clearly King’s magic touch hasn’t deserted him just yet...

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