Sainsbury's surprise: Supermarket predicts better-than-expected full-year profits

Sainbury's was the darling of the City as the grocer’s price-cutting campaign triggered a shock profit upgrade and the biggest spurt in the shares or more than six years.

The rare dose of good news for the sector — contrasting with the turmoil at rivals Tesco and Morrisons — came as chief executive Mike Coupe said he expected Sainsbury’s to be “moderately” ahead of the £548 million full-year profits pencilled in by analysts.

The cheer caught the City off-guard and sent the shares screaming as much as 13% or 31.7p higher to 261p at one stage as short-sellers scrambled to cover positions.

Sainsbury’s has been one of the most bet-against stocks in the City, with 16% of its shares on loan with hedge funds betting on the shares falling. Shares in Morrisons and Tesco rose 6% and 5% respectively.

Coupe said Sainsbury’s prices had “never been sharper” as the company also closes the gap on discounters like Aldi and Lidl.

“Our prices have got slightly better relative to our competition than this time last year but also the ‘price gap’ versus the discounters has come down by we reckon between 5% and 10% over the last year, so that’s probably the biggest difference,” he said.

The chief executive, who gave staff a 4% pay rise in August, also committed to exceed the Government’s National Living Wage and, eventually, the higher living wage set by the Living Wage Foundation.

“We don’t want to be a minimum wage employer,” he added.

Alongside £200 million in price cuts to tempt back customers, Sainsbury’s is on track to save £500 million over three years, Coupe added.

The firm also said its Tu clothing website had “significantly exceeded” expectations in six weeks of trading, while online grocery sales were up 15%.

While grocers are still up against a “challenging” climate of falling food prices, the grocer’s sales declines at stores open more than a year were also shallower than the City feared: down 1.1% in the quarter to September 26.