Sainsbury's profits increase 7.1%

Sainsbury's signalled an end to the supermarket "space race" today when it revealed it would scale back expansion this year.

Announcing a better-than-expected 7% rise in full-year profits to £712 million, the UK's third largest chain said it would reduce annual space growth from more than 7% to around 5%.

It dashed speculation that Sainsbury's might look to capitalise on Tesco's current woes by stepping up its expansion.

Sainsbury's added 19 new supermarkets, 73 convenience stores and 28 store extensions during the year to the end of March but now intends to slow growth to around one million sq ft, compared with 1.4 million sq ft in the last year.

Panmure Gordon stockbrokers retail analyst Philip Dorgan said that following significant expansion, food retailers were now focused on improving their balance sheets and returns for shareholders.

He added: "We have long held the view that the recent surge in industry space growth would not be long lasting and would slow."

Mr Dorgan said there had been speculation that Tesco's slowdown would encourage others to launch an opportunistic "space grab".

He added: "We remain bullish about the long-term prospects for the sector.

"Rising population and increased concern about diet, provenance etc should lead to a continuation of the recent uptick in food as a proportion of consumer expenditure."

Sainsbury's, which has more than 1,000 stores, said overall sales excluding VAT rose 5.6% to £22.3 billion, taking its market share to the highest level for nearly a decade at 16.6%.

It was helped by its Brand Match price scheme, which guarantees to match Asda and Tesco on 14,000 branded goods.

The group's profits growth represents a slowdown on the 9% increase a year ago but is still much better than Tesco, which recently suffered its first fall in UK profits for 20 years, while Morrisons last week posted its first fall in like-for-like sales in seven years.

The supermarket price war has gathered intensity in recent months after Asda launched a guarantee to be 10% cheaper than rivals, while Tesco staged its £500 million Big Price Drop campaign.

But Sainsbury's Brand Match scheme, launched in October, coupled with its Live Well For Less advertising campaign, has helped it outperform the grocery market.

Like-for-like sales excluding fuel but including VAT were up 2.1%, helped by a strong final quarter.

Chief executive Justin King said: "We are succeeding by understanding what our customers want, supporting and inspiring them to Live Well For Less.

"Brand Match, combined with our use of coupons at the till, has improved Sainsbury's price perception whilst retaining the benefits of our heritage in quality and service."

The group has seen strong growth in its own-label ranges, with its premium Taste The Difference lines up 8.2%.

Its Basics range grew 6.8%, driven by sales of store cupboard essentials and ingredients for cooking, making it the second biggest supermarket value brand, it claimed.

Sainsbury's is halfway through a revamp of its core By Sainsbury's range, with 3,700 new or improved products.

Its clothing and general merchandise ranges are growing faster than its food business, helped by new ranges by TV fashion guru Gok Wan.

Internet business grew 20%, making Sainsbury's the fastest growing online food retailer, with sales of £800 million, while its convenience store business is also growing ahead of the market.

PA