Sales up at Iceland for first time in three years

The Big Food Group claimed yesterday that Iceland was finally on the road to recovery after the struggling supermarket chain posted its first rise in underlying sales for three years.

The company, which also owns the Booker cash-and-carry business, said like-for-like sales at the frozen food retailer rose 1.7 per cent in the three months to 26 September. Underlying sales across the group grew by 2.2 per cent.

Bill Grimsey, the chief executive, said the hot summer had helped because people had flocked to Iceland to stock up on frozen lollies and burgers for the barbecue. Despite the supermarket chain's return to form, Mr Grimsey injected a note of caution, saying that "by no stretch of the imagination" is this "the recovery".

He added: "We are half-way through but we have another 18 months to two years to go. I wouldn't say we are excited by these results but we are confident we have a good management team in place."

Analysts said that although the news on Iceland was promising, it was too early to raise forecasts, although several increased their share price targets. "It is encouraging that this is the third or fourth cautiously optimistic trading statement in a row since the profit warning last year," Andrew Kasoulis, at CSFB, said. Shares in the group, in which the Icelandic company Baugur has a 22 per cent stake, climbed 6p to 113.5p.

The company is pressing ahead with plans to revamp the Iceland estate so that its stores appeal more to today's convenience-focused shopper. It has refitted 92 stores so far, and is refurbishing a further three per week. The rate of progress will increase to six per week next year. "The only thing that has ever held us back is the pace you can make such material changes to the business," Mr Grimsey added.

Mark Hughes, at Numis Securities, said: "These conversions continue to perform well, therefore like-for-like sales should be able to stay in positive territory over the next 12 months."

The progress at Iceland follows several profit warnings as a number of strategy shifts - including an unpopular move to stock more organic produce and a reduction in the chain's crowd-pulling "buy-one-get-one-free" offers - backfired.

The group also had better news from its Booker arm, which it acquired in 2000. Like-for-like sales at the country's third biggest wholesale chain rose 1.8 per cent in its second quarter. Mr Grimsey said independent retailers were attracted by the chain's Premier brand and the introduction of a new spend and save scheme that entices customers to spend more money.

"We are demonstrating that the integrated food group concept works," Mr Grimsey said.