Resurgent Sainsbury's doubles store expansion plans

A transformed J Sainsbury has accelerated its expansion plans in a clear signal of its faith in its own recovery.

The supermarket group expects to increase the size of its estate by 3 per cent this year - almost twice the amount it had previously hoped to grow. It has taken on more new space, including store extensions, because of its "confidence" in its offer.

The company, which is halfway through its three-year turnaround plan, reported a two-thirds jump in its underlying interim profits yesterday to £189m. It is ahead of its targets, putting Justin King, its chief executive, on course for his maximum £5m bonus once the plan is complete.

Philip Hampton, the chairman, said that because the profit recovery has come six months earlier than expected, the group has embarked on a "transparent" dividend policy. It intends to set its interim payout at 30 per cent of the level of the previous year's full dividend. He admitted the move "should help a lot" those shareholders, such as the founding Sainsbury family, "who work on the basis of cash-flow management".

Mr King said the group had defied its critics, who believed its £2.5bn three-year sales target was too stretching, showing "there is a lasting substance to our recovery". Lower prices, better availability and basing its offer on healthy, high-quality food had driven its success, he added. "That's why we remain confident we can deliver against the expectations we have set."

Shares in Sainsbury's slipped 4.25p to 408.25p amid disappointment among some analysts that the group had not delivered even stronger profit and margin growth. Its underlying supermarket profits of £215m missed some expectations, leaving the improvement in the fortunes of Sainsbury's Bank, which broke even, to make up the difference.

Mr King said it was "wrong" to believe that because prices were creeping up the environment was benign, although the battle between rivals was more about "quality than price" when it came to television advertising.

He said the group's target of increasing its space by 5 per cent per year, which it expects to hit within three to five years, was "increasingly about new stores". The company upped its capital expenditure bill to about £750m to fund its expansion plans. Its pre-tax profits for the six months to 7 October rose 123 per cent to £194m on sales up 8.3 per cent at £9.7bn.