Asda delivers storming full-year sales but profits slip

Asda, the UK’s second-biggest supermarket, posted record sales last year, but its pre-tax profits fell by 2 per cent after an adjustment to its share option costs.

The Wal-Mart-owned grocer said total sales surged by 11 per cent to £18.6bn over the 12 months to 31 December 2008, compared with £16.7bn the previous year, as its low-price message struck a chord with consumers during the downturn. But pre-tax profits at Asda, which unveils its third-quarter sales on Thursday, slipped to £520.4m in 2008, down from £532.7m the year before, according to accounts filed at Companies House over the weekend. The grocer said the fall in pre-tax profit was due to the impact of an accounting adjustment for share options in Wal-Mart granted to Asda employees, which resulted in an increase in share option costs of £87.7m. Excluding this impact, Asda said its underlying profits “grew broadly in line with sales and were ahead of internal targets”.

Asda said it paid dividends of £160m last year, compared with £200m in 2007, to the group's UK parent company.

On Tuesday ahead of the grocer’s Q3 results, TNS Worldpanel will post industry data, which could show that Tesco has snatched back market share from its rivals. Underlying sales growth at Tesco had fallen behind Morrisons, Asda and Sainsbury’s this year, but since May the retail giant has fought back fiercely with a massive £350m investment in its Clubcard loyalty scheme.

In 2008, Asda delivered like-for-like sales, excluding fuel, sales up by 6.2 per cent and grew its market share by 0.2 per cent to 17 per cent, compared with Tesco’s approximately 31 per cent share over the same period, according to TNS.

Asda has previously said that its underlying sales momentum has improved further in 2009, but the grocer’s sales growth in the second-quarter was pegged back by falling food price inflation and this message could be repeated on Thursday concerning its Q3. In August, the Wal-Mart-owned grocer posted underlying sales, excluding fuel, up by 7.2 per cent in the three months to 30 June, down from 8.4 per cent in the previous quarter.

In the 2008 report, the Wal-Mart-owned grocer said: “Asda delivered a strong performance in 2008, with both sales and profits exceeding expectations. This has been achieved by giving customers great quality products at outstanding value at a time when they needed it most. 2008 was a very difficult year for consumers, faced with rising energy prices, reduced availability of bank credit, and rising unemployment as the economic downturn took hold.”

This weekend, it emerged that Asda, Tesco and Sainsbury’s have launched a festive price war on toys, DVD box sets, electricals, clothes and Christmas decorations with more than a month and a half to go to Christmas day. The grocers sense a big opportunity to grab sales after the collapse of Woolworths and Zavvi late last year. Asda has doubled the space it allocates to toys this year, selling more than 700 lines, including a £35 dolls house.

On Wednesday, Sainsbury’s is expected to post pre-tax profits up by 16 per cent to £300m for the 28 weeks to 3 October.