Profits down at Sainsbury's

Sainsbury's claims it is on the road to recovery

The UK's second biggest supermarket group, Sainsbury's, has announced a drop in profits for the second year running.

We have a very ambitious three year programme to put Sainsbury's back on top

Sir Peter Davis, Sainsbury's chief executive

But the company claims stronger sales in the first three months of this year have continued into the current quarter, suggesting the group is well on the road to recovery.

Pre-tax profits, before exceptional items, slipped to £549m for the year ending March.

This was broadly in line with analysts' expectations but down from £580m last year. The company's dividend was unchanged at 14.32 pence.

Halting the decline

Sainsbury's shares initially climbed on news of the results, as investors were cheered by the company's upbeat forecast.

But by 1200GMT they had fallen back to Tuesday's closing price of 426p.

In the past 18 months, Sainsbury's has lost ground to market leader Tesco.

But chief executive Sir Peter Davis is hoping to turn its fortunes around with promotional campaigns, store extensions and refits.

Sir Peter says he has stopped the decline in the company's core supermarket business, with second half profits up 21%.

Wednesday's results also show a £5bn increase in full year sales, up to £18.4bn, from £13.bn last year.

And an increase of 4.8% in like-for-like sales over the first three months of this year.

'Ambitious programme'

Sir Peter told BBC Breakfast he believed the improvement in sales was continuing - and the group was gaining ground on rival Tesco, which last month unveiled profits of more than £1bn.

We want to be people's number one choice for food

Sir Peter Davis

"We have very ambitious three year programme to put Sainsbury's back on top," Sir Peter said.

"We have got to completely re-do our computer systems, we are going to modernise our supply chain and depots. We are going to re-invigorate and refurbish all of our stores. It's a full three-year programme."

Sir Peter said Sainsbury's was also gaining ground on its rivals in internet deliveries.

"We started very late, but we are now clearly number two in the market in this country."

'Size doesn't matter'

However, he acknowledged that Sainsbury's has a lot of ground to make up if it is reclaim its crown as Britain's number one supermarket.

They have got to sustain that (improvement in sales) if they are going to make any headway against the likes of Tesco - and Asda coming up behind them

Robert Clark, Retail Knowledge Bank

He said: "Anyone who is number two always says that size doesn't matter.

"What we want to do in the next few years is to increase the number of customers we have and to satisfy the ones we have even better.

"We want to be people's number one choice for food. We are really in the food business."

Encouraging

Robert Clark, a market consultant with analysts Retail Knowledge Bank, told BBC Breakfast that Sainsbury's figures showed that they had stabilised their business.

And the increase in like-for-like sales was encouraging.

But he added: "They have got to sustain that if they are going to make any headway against the likes of Tesco - and Asda coming up behind them.

He said there was "very little chance" of Sainsbury's catching Tesco, which had cornered the market in non-food products.

He advised Sainsbury's to concentrate on its niche in the market place for good quality food and more upmarket products.

Exceptional losses

Wednesday's results are distorted by exceptional losses relating to the restructuring of the company and a one-off gain from the sale of 22 Homebase stores to British Land for £156m.

Proceeds from that sale should play a crucial role in funding Sainsbury's recovery programme.

Sainsbury's has just seen Tesco unveil record profits, while Safeway has become a force again under its new chief executive Carlos Criado-Perez.