Sainsbury Profit Gains as Grocer Outstrips Main Competitors

J Sainsbury Plc (SBRY), the U.K.’s third- largest supermarket company, outstripped its main competitors with a gain in annual profit that beat estimates as a price- matching campaign helped boost its share of the market.

Adjusted pretax profit rose 6.2 percent to 756 million pounds ($1.2 billion), London-based Sainsbury said today, more than the 748 million-pound average estimate of 13 analysts. In the past two months, larger rival Tesco Plc and the smaller William Morrison Supermarkets Plc (MRW) both reported lower earnings.

Sainsbury was the only one of the four biggest U.K. supermarkets to win market share in the 12 weeks ended April 14, researcher Kantar Worldwide said last month. Customers turned to the grocer as it avoided the fallout from Europe’s horsemeat crisis and invested in price promotions. Sainsbury may take the market’s No. 2 spot from Wal-Mart Stores Inc.’s Asda by the end of the year, according to Barclays analyst James Anstead.

The grocer is “showing considerable empathy with its core customers, attracting additional footfall in conditions arguably not suited to Sainsbury and demonstrating considerable innovation,” Clive Black, an analyst at Shore Capital, said in an e-mailed note. He kept a hold recommendation on the shares.

Sainsbury fell 1.1 percent to 392.1 pence as of 8:36 a.m. The shares have gained 14 percent this year, exceeding Tesco’s 11 percent advance and Morrison’s 12 percent increase.

Sales Outlook

Sainsbury also said today it will take full ownership of its banking unit from Lloyds Banking Group Plc (LLOY) and predicted a slowdown in sales growth this year “reflecting the tough economic environment and reduced contribution from extensions.”

Chief Executive Officer Justin King said he sees “no near- term change in the current economic situation.”

Same-store sales will increase 1 percent to 1.5 percent in the fiscal year through March 2014, the company said. That compares with last year’s 1.8 percent growth. Operating profit will rise in line with sales, Sainsbury also said.

The guidance was “slightly disappointing,” according to Philip Dorgan, an analyst at Panmure Gordon & Co. in London, who cut his recommendation to hold from buy. He sees “an increased risk as a result of the buyout of its banking venture.”

The grocer will pay Lloyds 248 million pounds for its 50 percent stake in Sainsbury’s Bank. The purchase will be funded from the company’s own resources. The bank venture reported a profit before tax of 59 million pounds last year.

Lloyds CEO Antonio Horta-Osorio, 49, is seeking to strengthen the bank’s balance sheet by selling assets and cutting costs following its government bailout in 2008. The bank, 39 percent owned by the British government, has cut more than 30,000 positions and closed overseas units to focus on the U.K. since its 20 billion-pound taxpayer rescue.

“We expect the bank to become an important source of profit diversification and growth,” Sainsbury CEO King said in the statement.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

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

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