Sainsbury Profit Gains as Fuel Promotions Help Win Shoppers

J Sainsbury Plc (SBRY), the U.K.’s third- largest supermarket company, said first-half profit rose 6.6 percent as it won customers with promotions offering money off fuel prices and made savings on transportation and energy.

Pretax profit before one-time items climbed to 354 million pounds ($565 million) in the six months ended Oct. 1, from 332 million pounds a year earlier, the London-based retailer said today, adding that it’s confident for the peak Christmas season.

Consumers are reducing their spending on weekly grocery shopping as the cost of filling their car with fuel takes a larger slice of their income, Sainsbury said. The retailer in July offered a discount of 10 pence a liter when shoppers spent 60 pounds in store as it battled for customers with larger rivals Tesco Plc (TSCO) and Wal-Mart Stores Inc. (WMT)’s Asda. Last month, Sainsbury introduced a price-matching promotion in response to Tesco’s “Big Price Drop” campaign on 3,000 items.

“This is a robust performance in tough industry conditions,” Credit Suisse analyst Andrew Kasoulis said of the earnings. He has an “underperform” rating on the stock.

Sainsbury fell 0.9 percent to 297.6 pence in London trading. The stock has fallen 21 percent this year, more than Tesco’s 5.5 percent decline.

Managing Budgets

“What we see is customers week in, week out, managing their household budgets very tightly as indeed they have to as they are under tremendous pressure,” Chief Executive Officer Justin King said on a call. “We see it as a continuation of the story rather than any particular belt tightening.”

Customers are purchasing fewer items per shopping trip, which is reflected in a rise of almost 1 million in the number of weekly transactions to 22 million, Sainsbury said.

The grocer said it achieved 50 million pounds of savings in the first half and aims to achieve about 100 million pounds in the year. Improvements have been made in vehicle efficiency and route optimisation, while energy savings since 2007 have been equivalent to running 90 supermarkets a year, Sainsbury said.

“Our further good sales growth reflects our continued hard work to help our customers cope with the tough economic environment,” King said in the statement. “We expect the economic environment to remain challenging for the foreseeable future, but we are confident of further good progress in the Christmas period ahead.”

Lobster Thermidor

Trading Director Mike Coupe said Sainsbury is preparing for Christmas with innovations such as a four-bird roast, hidden cherry Christmas pudding and lobster thermidor under the “Taste the Difference” higher-priced premium label.

“We continue to develop our products right across the range, whether it’s basics, our core own-label or Taste the Difference,” Coupe said. “Particularly at Christmas we do see an uptick in Taste the Difference.”

The underlying operating margin, a measure of profitability, widened by 0.1 percentage points, at the lower end of guidance of between 0.1 and 0.2 percentage points.

Chief Financial Officer John Rogers said he’s “happy” with a consensus analyst estimate for full-year pretax profit of 702 million pounds and that he expect the margin for the year to remain ahead 0.1 percentage points. First-half earnings met the 353.4 million-pound average estimate of 14 analysts.

Sainsbury isn’t interested in bidding for the entire Iceland Foods Ltd. portfolio and would like only 10 to 20 of the outlets, Rogers said on the call. Landsbanki Islands hf and Glitnir Bank Hf are selling a 77 percent stake in the frozen- foods specialist.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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