J Sainsbury Plc (SBRY), the U.K.’s third-largest supermarket company, said first-half earnings climbed 7 percent as a focus on fresh British food helped the grocer grow faster than its main competitors.
Underlying pretax profit rose to 400 million pounds ($636 million) in the six months ended Sept. 28, the London-based retailer said today. That beat the 394 million-pound median estimate of nine analysts compiled by Bloomberg News. The retailer also raised its forecast for full-year profitability, sending the shares to the highest in more than five years.
An increasing proportion of British-made produce helped sales of own-label products to continue growing at more than twice the pace of branded items, Sainsbury said. The grocer is the only one of the U.K.’s four main grocers to be gaining market share as more shoppers turn to discounters Aldi and Lidl.
“These numbers reflect Sainsbury’s operational strength as it is the only U.K. listed grocer to have exceeded first-half profit expectations,” Al Johnston, an analyst at Citigroup Inc., said in a note to clients.
Sainsbury’s emphasis on fresh food has helped win shoppers as Britain’s grocery market polarizes toward discounters and upscale stores as customers seek lower prices and place a higher trust in the provenance of their produce.
All of the grocer’s fresh pork and breaded chicken are now obtained from British suppliers, the company said today. Sainsbury also emphasized that it gets all its fresh and frozen beef from U.K. and Irish suppliers as it seeks to gain shoppers made wary by an industry horsemeat scandal earlier this year.
Sales at stores open at least a year increased 1.4 percent in the first half and will grow 1 percent to 1.5 percent for the year, Chief Financial Officer John Rogers said on a conference call with reporters.
“The reality is that we have pretty tough comparables coming up, in the fourth quarter in particular,” Rogers said on the call. “We would expect like-for-likes in the second half to be a little bit lower than in the first half, but we are maintaining our overall guidance.”
Operating profit as a percentage of sales will show “mid-single-digit basis point growth,” for the year as a result of cost savings brought about by greater productivity and less waste, Rogers said on a separate call with analysts. Sainsbury, which previously forecast a “flat” margin for the year, generated 55 million pounds of savings in the first half and is on course to reach about 100 million pounds for the year, the company said.
Sainsbury’s share of the U.K. grocery market rose to 16.7 percent in the 12 weeks ended Oct. 13, from 16.6 percent in the same period a year earlier, Kantar Worldpanel said last month.
The latest four-week sales exceeded those of Wal-Mart Stores Inc.’s Asda, the second-largest U.K. grocer, for the first time in more than a decade, Barclays analyst James Anstead said in an Oct. 22 note, citing Kantar Worldpanel figures that are not publicly available.
Tesco Plc (TSCO), the U.K.’s largest retailer, reported unchanged U.K. same-store sales in the second quarter last month and Morrison last week posted the steepest drop in same-store sales in almost a year in its fiscal third quarter.
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