Justin King bows out of Sainsbury with 5.3% profit rise


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Justin King bows out of Sainsbury with 5.3% profit rise

  1. 1. Last updated: May 7, 2014 9:43 am Justin King bows out of Sainsbury with 5.3% profit rise By Andrea Felsted, Senior Retail Correspondent ©Getty Under Justin King, Sainsbury has been one of the best performing supermarkets J Sainsbury insisted it could withstand the escalating price war in the grocery sector as it announced a 5.3 per cent increase in underlying pre-tax profit for the year to March. The past few weeks have seen an intensification of the price battles between the big supermarkets. Wm Morrison has pledged to cut prices by an average of 17 per cent across a range of 1,200 own-branded and branded products to take on the German discounters Aldi and Lidl, while Tesco has also announced a fresh round of price cuts. Rather than making any price commitments to rival those of Tesco, Morrison and Asda, Justin King, outgoing chief executive, said the company could prosper without any headline announcements – focusing instead on the things that he claimed made Sainsbury different. “Viewing value being purely about the single dimension of price completely misreads where the customer is,” he said. Mike Coupe, who will take over as chief executive in July, said: “Of course, we will match our competitors’ prices toe to toe, and our price position is as strong as it has ever been . . . But our offer is built on differentiation.” This included such factors as good quality products, with strong provenance, whether this be ethical or British sourcing, as well as clean and tidy stores, good availability and craft skills such as bakeries that produced bread from scratch.
  2. 2. “If anything, some of the things that have happened will give us a big opportunity to increase our differentiation,” said Mr Coupe. He said some rivals were reducing their ranges to compete with the so-called hard discounters, which played into Sainsbury’s hands, with its broader selection of products. Bruno Monteyne, analyst at Bernstein, agreed that Sainsbury could be a winner from the more competitive environment. “Sainsbury offers this ‘quality food for the masses’ very successfully and the actions of Morrison and Tesco moves them further away from the quality sector, further strengthening Sainsbury’s differentiation,” he said. According to industry figures from Kantar Worldpanel, the consumer research group, Sainsbury increased sales by 6.2 per cent in the four weeks to April 27, while Asda increased sales by 7.1 per cent. Tesco’s performance continued to lag, at a 0.9 per cent increase, although this was the first positive sales growth since November, while Morrison’s sales fell by 3.3 per cent. Clive Black, analyst at Shore Capital, was more cautious on Sainsbury’s prospects. He said the company was in a stronger position than Asda, Morrison and Tesco “to extol non-price elements of their offer. But like all of them I think Sainsbury is now being more impacted by the hard discounters than it was in the past. It is therefore not immune from the activity that is taking place in the market.” Sainsbury’s shares fell 3 per cent in afternoon trading to 323.28p on concerns that it had not given firm guidance on margins for this year. Mr King acknowledged that as a result of the price cuts across the market, the cost of staples, such as milk, was lower than a few months ago. The comments came as underlying pre-tax profit rose from £758m to £798m, on sales excluding VAT up 2.8 per cent to £23.95bn. Statutory pre-tax profit rose from £772m to £898m, even as the supermarket group wrote off £92m for sites that it would no longer develop. Capital expenditure was £888m in the year to March 15, below the target of £1.1bn, as it continued to open 1m sq ft of new space. Capital expenditure this year is expected to be similar to that in 2013/14, as Sainsbury cuts its new space target to 750,000 sq ft. Thereafter, spending is expected to fall to between £700m and £800m a year.
  3. 3. Analysts expect underlying pre-tax profit this year to fall to £762m, but Mr King denied he was leaving at the top of the market. “I understand completely why people would say I’m trying to get out at the top. I made the point that I’m retaining a significant shareholding in the company as an indication of my confidence,” he said. “Ultimately, whatever happens in the price skirmishes we are currently seeing, we are a business that is very well equipped to succeed in that environment. We have been succeeding in that environment for a very long period of time” - Justin King, outgoing Sainsbury chief executive