Rise in Asda profits driven by non-food sales growth

ASDA, the UK's second-biggest supermarket chain, revealed yesterday that profits rose by 10.4 per cent last year, driven by its continued push into non-food products.

Asda Group, owned by the US giant Wal-Mart, reported a profit of £670.8m in the year to end-January 2004, up from £607.8m the previous year. Its sales rose 10 per cent to £13.bn, documents filed at Companies House showed. Asda's sales growth, however, lagged that of its US parent, which grew global sales by 12 per cent in the period.

The UK chain, which is powering ahead of J Sainsbury, said new non-food initiatives, such as photo kiosks, pharmacy and jewellery had all boosted profit.

"The results reflect that customers like what we are doing. They compare well with our main competitors," an Asda spokesman said.

The group opened its first stand-alone clothing stores last year under its George label. It recently opened its first site dedicated solely to non-food.

Analysts said it was impossible to gauge how much new space had contributed to Asda's sales growth because the group does not reveal how fast underlying sales climbed.

Despite being owned by the world's biggest retailer, which acquired Asda five years ago, the chain still has some way to go before it catches Tesco. Its bigger rival outstripped Asda on both the sales and profit front during its last financial year. Tesco, which recently reported a 24 per cent rise in interim profits, is expected to break the £2bn profit barrier this year.

Asda's success piles on the misery for Sainsbury's, which has issued four profit warnings this year. Sainsbury's market share is being squeezed between the likes of Asda and Tesco on the one hand, which dominate the value end of the market, and Waitrose and Marks & Spencer at the upper end. Speculation again mounted yesterday that Sainsbury's independent days are numbered.

Asda's results highlight the turnaround the group has achieved since 1992, when it was 12 hours from receivership with £1bn of debt. The group was rescued by Allan Leighton and Archie Norman - the duo linked to the fevered speculation driving Sainsbury's shares higher.

Asda's accounts also revealed that its most highly paid director - most likely its chief executive, Tony De Nunzio - received £871,000. By contrast, Tesco's boss, Sir Terry Leahy, was paid £2.98m. Mr De Nunzio's total emoluments are likely to be higher though because he also participates in Wal-Mart's equity compensation scheme.

Asda Group paid a dividend of £1.36bn to its parent company. A spokesman said this was used to service the £2bn debt owed by Wal-Mart Stores (UK), and not repatriated to the US.