Sainsbury recovery increases pressure on ailing Morrisons

J Sainsbury declared yesterday that its long-anticipated recovery was under way after reporting its first rise in underlying quarterly sales for more than two years.

J Sainsbury declared yesterday that its long-anticipated recovery was under way after reporting its first rise in underlying quarterly sales for more than two years.

The supermarket group trumped even its own expectations to announce a 1.7 per cent rise in like-for-like sales over the past three months, excluding petrol. Its share price rose 6p to 293p.

Justin King, the chief executive, said: "This is the start of the recovery." He said the sales gain was a result of better availability and lower prices, but added that the group had prospered from Wm Morrison's woes by luring former Safeway shoppers to its stores. "I can't remember a time that Sainsbury's beat Morrisons so I'm pleased with that," he said.

But Mr King was careful not to crow too much about Sainsbury's achievement. "It's a good step in the right direction but we know there is a long way to go. I remain realistic about the challenge," he said.

The group is committed to matching market levels of sales growth by the end of its financial year to March 2006. It is also aiming to grow its top line by £2.5bn by 2007-08. But this will hit profits as Sainsbury's cuts 6,000 prices and tackles its availability by employing 3,000 staff to stack shelves.

Even excluding the exceptional charges that will drag the group's final figures into the red this year, Sainsbury's pre-tax profits the past year will more than halve to £255m from £675m, according to estimates by Goldman Sachs. The broker expects the figure to slide next year to £249m. Mr King said: "Our availability is up where the industry is," adding that on a good day it rivalled that achieved by Tesco. He said the group was not altering its profits guidance for the next 12 months, suggesting that it would continue to rack up a multimillion-pound wastage bill.

The group estimated that Comic Relief had delivered an extra 0.3 per cent of like-for-like sales growth during the quarter. Including petrol, underlying sales grew 3.7 per cent, while total sales rose 7.2 per cent. Deflation was 1.6 per cent.

Yesterday Sainsbury's announced details of a management incentive plan that could hand Mr King a bonus of more than £5m if the group hits its turnaround targets.