The grocer made pukka by its now ex-cheerleader Jamie Oliver has played a blinder in the fiercely competitive supermarket wars, posting a 6.8% increase in sales to £24.5bn for the year to 17 March. It’s a bittersweet result for shareholders however, as profits took a slight dip to £799m, down from £827m the year before.
The supermarket puts the drop in profits down to increased pension costs, and smaller profits on sales of its existing property. Sainsbury’s reckons these are not core operations of the business, and if you agree with that, then underlying profit actually rose 7% to £712m, marginally higher than analysts were expecting. It also conveniently second-guesses anyone who might suggest that Sainsbury's margins have been taking a hit.
In a bumper year for sales, Sainsbury’s has achieved what all supermarkets are hankering for – increasing market share in a shrinking market. As the economy slips back into recession and unemployment is set to rise, the lucrative grocery industry has seen aggressive price-cutting and extensive advertising campaigns from all players seeking advantage in the tough climate. Sainsbury’s market share rose to 16.6%, which is the highest it has been in almost a decade. It’s still not Tesco, but its certainly impressive given how tight people’s wallets are at the moment…
The results show that a few points of strategy are bearing fruit for Sainsbury’s, too. The firm has seen 8.2% growth in its own brand Taste The Difference, and 6.8% growth in its Basics range. It is also increasing the number of stores rapidly: 19 new supermarkets and 73 convenience stores were added to the portfolio, and along with 28 extensions to existing stores, this totals 1.4 million sq ft of space.
All in all, a good set of results for Sainsbury’s, but the challenge now will be to hold onto the gains in market share and up profitability. In the current climate, shareholders need to see growth, especially as the eurozone continues to rumble.