J Sainsbury Plc, the U.K.’s third-largest supermarket chain, reported the strongest sales growth in more than two years as the grocer avoided the fallout from Europe’s horse meat crisis and sold more non-food products.
Sales at stores open at least a year rose 3.6 percent, excluding revenue from fuel, in the 10 weeks ended March 16, London-based Sainsbury said today. That beat the 2 percent median estimate of seven analysts compiled by Bloomberg and was the fastest growth since the third quarter of 2011.
Sainsbury shares rose as much as 3.1 percent to the highest in more than two years. The retailer was the only one of Britain’s four biggest supermarkets to gain market share in the 12 weeks ended Feb. 17, Kantar Worldpanel said Feb. 26. As the industry struggled to cope with the horse-meat crisis, Sainsbury said none of its products contained traces of equine DNA.
Chief Executive Officer Justin King said today that the grocer is reaping the reward of a long-term investment in “supply chain and sourcing credentials.” Still, the horse meat crisis didn’t play “a substantial part” in the sales performance, he said on a conference call.
Sainsbury has carried out DNA testing on meat products for more than 10 years. Its fresh chicken has been 100 percent British since 2003, while all the fresh beef is sourced from the U.K. and Ireland. Larger competitor Tesco Plc became the first grocer to withdraw frozen beef products from its shelves in mid-January and only after that introduced DNA testing on all meat products, while pledging to buy more British meat.
“Sainsbury has avoided being implicated in the horse meat debacle and so its sales growth is comfortably the strongest of the big four,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “In fairness, horse meat likely isn’t the only driver here.”
Sainsbury said its general merchandise and clothing business is growing at nearly three times the rate of food and reached 1 billion pounds ($1.5 billion) of annual sales in February. About 0.5 percentage point of the same-store sales growth was due to store extensions, the same as the previous quarter and less than in the first half, the company said.
Sainsbury rose to 376.4 pence, the highest since March 4, 2011, and was up 2.2 percent at 373.2 pence as of 10:10 a.m.
The shares have gained 23 percent in the past year. Speculation of a bid by Sainsbury’s largest individual shareholder, the Qatar Investment Authority, for Marks & Spencer Group Plc, may revive takeover speculation for Sainsbury and boost the stock further, according to Exane’s Gwynn.
Chief Financial Officer John Rogers declined to comment today on whether the company has talked to the QIA over the past week about its commitment to Sainsbury.
“They’ve always been very supportive of our business and we communicate with them like we communicate with all our shareholders,” he said.
Sainsbury’s King said today that the grocer is unlikely to respond to this month’s introduction by Tesco of a new price comparison program. Tesco’s Price Promise extends to own-label products, unlike Sainsbury’s Brand Match campaign, which the retailer has been running on branded goods since October 2011.
“You will have seen a significant conversation around Tesco’s price match on how on earth one truly and fairly compares own-label and I would share that concern,” King said on the conference call.
“The vast majority of our own-label is not comparable to that of our own competitors for supply-chain reasons,” he said. Sainsbury will be “pointing out to Tesco where we believe their own-label products are being unfairly compared to ours.”
For the full-year, comparable sales, excluding fuel, rose 1.8 percent, Sainsbury said.
King is “comfortable” with analysts’ profit estimates for the year, he said in an interview with CNBC.
“Sainsbury’s acceleration highlights the relative ease with which it is hitting its earnings expectations,” Alastair Johnston, an analyst at Citigroup Inc., said in a note.