Soaring energy bill takes shine off Sainsbury's sales recovery

J Sainsbury, the recovering supermarket group, insisted its turnaround remained on course yesterday despite warning that soaring energy costs would hit second-half profits.

The energy scare knocked 5 per cent off the group's shares, which closed 17p lower at 329.5p. It took the shine off Sainsbury's results, which showed it was beating its own targets to transform its fortunes.

Analysts edged their profits forecasts for the year to next March down by 4 per cent to about £340m after increasing them after surprisingly strong fourth-quarter sales.

Justin King, the chief executive, said: "We are under no illusion that we still have a tremendous amount to do." The group delivered £722m of its £2.5bn sales target, which it has promised to reach by March 2008.

Weighing into the "hot topic" of environmental awareness, Mr King hit out at Tesco which launched a 10-point plan last week to become a better neighbour. In veiled criticism of Sainsbury's bigger rival, Mr King said corporate responsibility was "not about making announcements about big new initiatives".

Adding that behaving ethically was "Sainsbury's turf", Mr King said: "It's a more newsworthy story if somebody starts doing something that they weren't doing before." Sainsbury's is cutting its carbon emissions by 5 per cent each year and encouraging customers to reuse carrier bags.

Just days after the Competition Commission launched a fresh investigation of the grocery sector which will focus on planning, Sainsbury's announced it was embarking on its first major expansion drive in years. It wants to add up to 5 per cent of new space each year, although it will need at least two years to replenish its property portfolio.

Its energy costs will be £15m higher than it had expected in its second half, rising to £55m, the group said. The rise comes in a critical year for Sainsbury's, which has promised its higher sales will bolster its bottom line.