J Sainsbury Plc, the U.K.’s third-largest supermarket company, predicted a resumption of sales growth this year as it matches some price cuts by competitors and expands its online and convenience-store presence.
Sales at stores open at least 12 months in the year through March 2015 will rise at a “similar” pace to the 0.2 percent of the previous year, London-based Sainsbury said today, marking a turnaround from a 1.1 percent drop in the second half of last year.
Sainsbury is dodging price cuts by competitors such as Tesco Plc and Wm Morrison Supermarkets Plc with a focus on quality, freshness and food provenance. The retailer’s share of the U.K. grocery market remained at a decade-long high of 16.8 percent in the past year as all of its main competitors lost ground to German discounters Aldi and Lidl. Sainsbury today reported profit for last year that beat analysts’ estimates and said it doesn’t expect any change to predictions for this year.
“The overall indication and future guidance was as positive as it could be,” Bruno Monteyne, an analyst at Sanford C. Bernstein, said in a note. “Sainsbury’s represent the quality end of the sector and therefore do not need to react as strongly to the discounters growth.”
Sainsbury rose as much as 3.5 percent in London trading and was up 0.8 percent at 336 pence as of 9:47 a.m.
The grocer is “very confident” it can compete on price, Chief Financial Officer John Rogers said in an interview on Bloomberg Television.
Competitors including Tesco, Wal-Mart Stores Inc.’s Asda and Morrison are set to invest almost 1 billion pounds in lower prices this year, trying to halt the advance of Aldi and Lidl.
“Our prices are as sharp, as they’ve ever been, underpinned by the promise of Brand Match,” incoming Chief Executive Officer Mike Coupe told journalists today. “However, our brand is built on a combination of great prices, great value underpinned by quality, sourcing credentials, clean and tidy shops and great customer service.”
Sainsbury’s Brand Match campaign ensures shoppers don’t pay more for branded goods than at competitors by checking the prices of items at the point of sale. Customers get a coupon if rivals are cheaper, according to the company.
“The main highlight is that the group is happy with full-year consensus pretax profit forecasts,” Andrew Gwynn, an analyst at Exane BNP Paribas, said in a note to clients. “We’d expect Sainsbury to remain in price-following mode.”
Sainsbury reported pretax profit excluding one-time items of 798 million pounds ($1.4 billion) in the 12 months through March 15, up 5.3 percent from the prior year. The average of 12 estimates compiled by Bloomberg was 783.3 million pounds.
“While the general economic outlook is showing some signs of improvement, conditions in the food retail sector are likely to remain challenging for the foreseeable future as customers continue to spend cautiously,” outgoing Chief Executive Officer Justin King said in the statement.
The grocer declared a dividend for the year of 17.3 pence a share, up 3.6 percent on the previous year’s 16.7 pence.