Sainsbury Profit Tops Estimate as Grocer Outpaces U.K. Peers

Sainsbury CFO Sees `Very Tough Retailing Environment'

U.K. supermarket chain J Sainsbury Plc reported annual profit that beat estimates as the company outperformed peers in a market blighted by deflation and discount competition.

Operating profit fell 11 percent to 700 million pounds ($1.02 billion) in the 52 weeks ended March 12, the country’s second-biggest grocer said in a statement Wednesday. Analysts expected 683.4 million pounds, according to the average of 14 estimates.

The better-than-expected profit will fuel investor optimism that after years of ceding market share, the U.K.’s largest grocers are wrestling back momentum from discounters Aldi and Lidl. As the scrap for customers continues, Sainsbury is looking elsewhere for growth. The grocer is paying 1.4 billion pounds for the owner of the Argos chain to bolster its online distribution and convenience offering.

“Sainsbury have a lot on their plate and they are managing manfully to take the challenge of the discounters and the online business in their stride,” Phil Dorrell, a partner at researcher Retail Remedy, said by e-mail. “Are they going to be able to manage this while integrating Argos, that remains to be seen and perhaps their biggest challenge in the next 18 months.”

Sainsbury shares fell 2 percent to 280.1 pence at 8:03 a.m. in London.

Sales at the company’s convenience business rose 9 percent to more than 2.3 billion pounds in the year. Sainsbury opened 69 convenience stores, taking the total to 773.

Online grocery sales rose 9 percent, with orders increasing 15 percent, the company said. Sainsbury plans to double its number of click & collect sites to about 200 by the end of the current financial year.

Coupe said he expects the grocery market to remain competitive “for the foreseeable future.” Though the underlying growth of the discounters is tailing off, Chief Financial Officer John Rogers said in an interview with Bloomberg Television.

“The actions that we and our competitors have taken are starting to take effect,” he said.

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