Sainsbury's chief 'saves Christmas' as supply chain copes with demand

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The Independent Online

Justin King, the chief executive of J Sainsbury, declared yesterday that his mission to "save Christmas" for the troubled supermarket group had worked, although underlying sales still fell.

Justin King, the chief executive of J Sainsbury, declared yesterday that his mission to "save Christmas" for the troubled supermarket group had worked, although underlying sales still fell.

Despite widespread fears that the group's supply chain would not cope with the extra weight of festive demand, Mr King said his "short-term fixes" had succeeded.

The group reported a 1.2 per cent drop in like-for-like sales excluding petrol in its third quarter, but said trading had improved over Christmas and the new year. For the four weeks to 1 January, underlying sales were 0.4 per cent lower, excluding petrol.

It took 3,000 additional full-time staff and an extra depot to ensure shelves were fully stocked in December. This put the group "in the zone" of industry-leading availability, Mr King said, although it paid the price with higher stock-wastage levels.

"We will keep availability high and then chase waste down in that order," Mr King said. Of the £400m the group expects to save by 2008, £120m will come from earmarked stock losses.

Sainsbury's shares rose 3.25p to 268p on relief that its trading had not deteriorated, but analysts were unimpressed. Andrew Fowler, at Merrill Lynch, told investors in a research note: "Falling in-store like-for-like sales when availability was (according to management) improved on previous Christmases, not just earlier in 2004, shows that the brand is the issue."

The group said the additional costs it racked up for labour, depots and waste over Christmas would continue in its fourth quarter, although it is preparing to shut the additional depot it reopened. It had to resort to desperate measures after the £3bn infrastructure overhaul attempted by Mr King's predecessor, Sir Peter Davis, left its supply chain in its worst-ever position. The group is taking a £550m hit to profits this year to cover the extra costs and massive investment in prices.

Mr King said: "I fully expect to have to fight for every pound in the coming months." He has pledged to lift the group's sales by the second half of next year.

Sainsbury's relative paucity of non-food products hit its sales in November, preventing it from bettering the 1.1 per cent fall in underlying sales it reported in its second quarter. Including petrol, third-quarter underlying sales rose 2.4 per cent, while total sales increased by 6.1 per cent.

The group is on track for the first annual loss in its 135-year history, excluding an exceptional gain from the sale of its US supermarkets business.

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