Sainsbury signals recovery

SUPERMARKETS group Sainsbury's chief executive Justin King today painted a brighter future for the ailing chain despite a plunge in full-year profits, promising its recovery remains on track.

After hefty exceptional charges, operating profits crashed from £675m to £254m as total sales of continuing operations rose 5.5% to £16.4bn.

At the pre-tax level, profits were just £15m, down from £610m last time. As previously warned, the dividend total for the year to 26 March is halved to 7.8p a share as the cash is poured back into price cuts.

There was no update on trading for the first few weeks of the new financial year, but the group highlighted a 1.7% increase in underlying sales over the final quarter - the first rise in quarterly sales in more than two years. The decline for the year was 0.4%.

King, who has been in the hot seat for 14 months, again stressed it was still 'early days' in the recovery programme: 'We are very pleased with the progress we have made - and our customers are noticing,' he said. 'They have seen a difference but we could still do better. It's not job done.'

Sainsbury's performance, which compares with the record £2bn profit produced by rival Tesco, was well received in the City. Describing them as 'a solid set of numbers' analyst Iain McDonald at Numis said the group had probably managed to maintain like-for-like sales growth at near 1.7% since the year-end. He raised his current-year profits forecast from £248m to £300m.

As King pursued his sales-led recovery strategy, price cuts on 6,000 items were pushed through last year as Britain's third-largest supermarkets chain raced to be more competitive.

A further 1,000 reductions have been made in the past four months and there will be more, King promised. Sainsbury's continues to pick up disaffected customers from Morrison, which is struggling to integrate the Safeway chain.

Recent figures from researcher TNS showed Sainsbury's share of the market increased from 15.4% to 15.8% in the four weeks to 24 April.

Last week, Morrisons shocked the City with its third profits warning in a year, citing higher-than-expected conversion costs for the poorly performing Safeway chain.

Earlier this week, Tesco revealed it had paid a £2m bonus to chief executive Sir Terry Leahy, taking his total package up to £3m. But King will also be richly rewarded if he succeeds in turning round Sainsbury's. Under a new incentive scheme he stands to make £5m if he hits his ambitious target to grow sales by £2.5bn in four years.

Further guidance on the state of the retail sector comes tomorrow with full-year figures from health and beauty retailer Boots.