Sainsbury's outpacing Tesco with sales growth

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The Independent Online

J Sainsbury pulled further ahead of its recovery plan after surging demand for healthy food helped it to post its seventh quarter of rising sales yesterday - outpacing Tesco once again.

Like-for-like sales excluding petrol grew by 6.6 per cent in the 16 weeks to 7 October, making the past two years the best for the chain since its glory days of the 1980s and early 1990s.

The strong second-quarter sales performance boosted confidence that Sainsbury's would deliver the crucial missing element to its turnaround plan - profit - later this year as promised. Analysts nudged their annual pre-tax profit forecasts up by about 2 per cent to £356m - about one-third more than the chain delivered last year.

Justin King, the chief executive, said: "We're comfortable with the consensus [forecast] so it's pretty clear we expect to turn sales growth into profit growth." He reiterated that higher fuel bills in its second half will cost the company £55m, which means it will make more profit in the first six months of its financial year.

Despite the group's transformation - before Mr King took over, many had dismissed the brand as "broken" - not everyone is under Sainsbury's spell.

Philip Dorgan, a retail analyst at Panmure Gordon, said: "To justify the current share price, Sainsbury's needs to be as profitable as Tesco in three years' time and grow its like-for-like sales by 2 per cent faster each year. This looks unlikely given Tesco's scale and productivity advantages." Sainsbury's said customers were shopping more frequently, popping in up to three times a week to stock up on fresh produce. This meant they were spending slightly less per visit.

Mr King said a better awareness of "health, in all its guises" was helping Sainsbury's gain ground on rivals. Although second-quarter underlying salesgrew at the same pace as Tesco's, he said the market leader had been helped by stronger summer demand during its reporting period. "If you take the last year as a whole, we've grown faster than them," he said.

Sainsbury's, which is half-way through a three-year recovery programme that will net Mr King £5m if he hits all his targets, has already delivered £1.3bn of the extra £2.5bn of sales it promised. But tougher comparisons in its second half mean it is sticking to its original plan.

"If we keep going at this rate, our like-for-like growth will be lower - not because we're slowing down but because we are up against tougher comparisons," Mr King said.

Weighing in on the debate about whether increased demand for organic food was putting pressure on the quality of produce, Mr King warned: "It would be a retrograde step for the UK to lower its standards."

Sainsbury's sharesclosed 6.5p lower at 384.5p.