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Bloodied Sainsbury pledges comeback

Sainsbury revealed the wounds of the cut-throat supermarket battle yesterday as it reported a 14 per cent drop in half-year profits to pounds 387m, but sounded a rallying cry to the City that it was turning the corner.

Profits were dented by the petrol price war, lower margins, increased customer service costs and the costs of its new Reward loyalty card. Operating margins in the first half fell to 6.4 per cent from 7.8 per cent last year.

But David Sainsbury, chairman, said a recent rise in market share from 12.3 to 12.5 per cent showed Sainsbury was beginning to claw back the ground lost to arch-rival Tesco. He also said that the new Sainsbury's Bank, announced last Friday, was evidence that the company was starting to seize the marketing initiative after a long period during which it had been outgunned by Tesco and Asda.

"We are now driving ahead with a major programme of marketing and operational changes to improve substantially our offer to customers. We are gaining market share and expect sales growth to increase as these changes take effect."

Sainsbury has brought forward its planned management changes and Dino Adriano will take over as chief executive of the supermarket business on 9 March. Tom Vyner will then relinquish the post but remain deputy chairman until the end of the year when he retires.

Though Sainsbury's shares rose 8.5p to 363.5p in response to the bringing forward of the management succession, City analysts were less convinced about the prospects of a Sainsbury's revival.

They pointed to a disappointing sales performance which has seen Sainsbury's like-for-like sales increase by just 3 per cent compared with an industry average of 5.4 per cent. Recent figures from Tesco and Asda were even higher.

"The sales figures are disappointing. Any hopes for the future require a leap of faith," said Tony MacNeary of NatWest Securities. Paul Smiddy of Credit Lyonnais Laing was more upbeat. "There is a new era of pragmatism. They are being a lot more honest about past mistakes but the sales still seem to be stuck in the mud."

Mr Adriano had earlier stressed that Sainsbury would avoid arrogance and complacency. "We are focused on restoring competitive advantage. This is not going to be something that is achieved overnight but will accumulate from a series of well-executed strategies."

There were few additional details about Sainsbury's Bank which will be launched in the New Year with Bank of Scotland.

Sainsbury plans 18 new stores in the full year. It also plans to be more flexible about store formats. These will include some smaller "country town" outlets though they will not be branded under a different name like Tesco Metro.

Though profits at Sainsbury's supermarkets and the SavaCentre stores were affected by the petrol price war during the period, Sainsbury's Homebase performed strongly with profits up 40 per cent to pounds 26.5m. All of the Texas Homecare stores will be re-branded under the Homebase name by December. The final price of the Texas acqusition has still to be resolved. The chain recorded increased losses of pounds 11.5m in the first half.

Group sales rose by 6.4 per cent to pounds 7.5bn in the six months to 21 September.

The dividend was increased by 2.9 per cent to 3.5p.

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