Sainsbury Predicts Weaker Sales Growth Amid Stagnating Economy

J Sainsbury Plc, the U.K.’s third-largest supermarket company, predicted a slowdown in sales growth after a year of outpacing its main competitors.

A largely stagnant economy and a smaller contribution from store extensions will limit same-store revenue growth to between 1 percent and 1.5 percent in the fiscal year ending March 2014, the London-based company said today. That compares with last year’s 1.8 percent gain on a basis that excludes gasoline.

Chief Executive Officer Justin King said he sees “no near-term change in the current economic situation,” adding that he expects Sainsbury to outperform an “essentially flat” market.

The grocer outstripped its main competitors last year, boosting profit and its share of the market. Customers turned to Sainsbury 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.

Today’s sales guidance was “slightly disappointing,” according to Philip Dorgan, an analyst at Panmure Gordon & Co. in London, who cut his recommendation to hold from buy.

Sainsbury fell as much as 3.6 percent in London trading and was down 3.2 percent at 383.7 pence as of 12 p.m. Before today, the shares had gained 15 percent this year, exceeding Tesco’s 10 percent advance and Morrison’s 11 percent increase.

Sainsbury’s adjusted pretax profit rose 6.2 percent to 756 million pounds ($1.2 billion) in the financial year ended March 16, the London-based company said today. That beat 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 both reported lower earnings.

Market Share

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.

The retailer has won shoppers with the Brand Match price matching program it introduced in October 2011. The program promises to be no more expensive than Sainsbury’s main competitors or shoppers receive a voucher with the difference.

Sainsbury has also been developing its presence in the fast-growing areas of online and convenience outlets. Annual online grocery sales are almost 1 billion pounds, while convenience-store sales now exceed 1.5 billion pounds, it said.

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.

Bank Buyout

The supermarket chain also said today it will take full ownership of its banking unit from Lloyds Banking Group Plc.

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.

Sainsbury’s King said he expects the bank to become “an important source of profit diversification and growth.”

The grocer increased the dividend for the year by 3.7 percent to 16.7 pence a share

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