Sainsbury's in sight of No 2 supermarket spot as sales rise

Sainsbury's chief executive Justin King hailed his recovery plan yesterday as the once struggling grocer said sales were climbing.

Like-for-like sales - which strip out the impact of new store openings - have risen 5.3 per cent in the three months since Christmas. The figures easily beat market predictions, sending the shares up 5.25p to 332.25p.

This is the fifth consecutive quarter that Sainsbury's sales have grown, making it possible that the company may soon reclaim the No 2 spot in the supermarket league. It has a 16.2 per cent share of the market, compared with 16.6 per cent for Asda. Tesco is easily the market leader with more than 30 per cent.

Philip Dorgan, at Panmure Gordon, said the results were "miles ahead of expectations", suggesting analysts had underestimated the strength of the supermarket's recovery.

Mr King said: "The sales growth announced today shows that customers are noticing the many improvements we have been making to our business. Over 16 million customers are now shopping in our stores each week, an additional one million in the last six months."

Total sales, including petrol and new stores, were up 6.7 per cent. Mr King said: "A lot of people felt the gains of the first four quarters were low-hanging fruit but this is now growth on growth. I think people just underestimated us."

One effect of the so-called "Making Sainsbury's Great Again" scheme is that the cost of groceries is falling. Price deflation of 2.2 per cent in the run-up to Christmas would seem to put profits at risk as margins get squeezed.

Mr King believes that better profit margins will emerge in the second half of the year, although he acknowledged that Tesco and Asda are likely to respond competitively.

Central to Sainsbury's strategy has been lower prices on more than 1,000 goods in the past 12 weeks.

The City is expecting pre-tax profits of £260m for this year, a level that Mr King said he is "comfortable" with. Profits would probably be higher but for difficulties at the banking arm.

Sainsbury's plans to open 50 local convenience stores this year.