Shares advance as Sainsbury sheds the blues: Group pays higher dividend in wake of successful price-cutting campaign

DAVID SAINSBURY, chairman of the supermarket group J Sainsbury, yesterday signalled a return to stability after last year's damaging price wars. He said he expected volumes and margins to remain steady from now on.

But Mr Sainsbury said he did not expect any let-up in competition for shoppers. 'Essentials (the group's cut-price scheme) and other major price moves have made it clear that any repositioning will meet a vigorous competitive response (from us).'

His comments came as the company disclosed a 6 per cent increase in underlying taxable profits to pounds 777m, on sales 9.3 per cent ahead at pounds 11.2bn, in the year to 12 March. A pounds 370m charge for property write-offs and redundancies, announced in January, together with a decision to depreciate its freehold stores, meant pre-tax profits almost halved to pounds 377.5m. Earnings per share were 29.4p, or 8.6p after the property charges, compared with 27.9p last time. The dividend is increased by 6 per cent to 10.6p, after a 7.6p final.

The results, and Mr Sainsbury's comments, were more buoyant than the City had expected following a gloomy trading statement in January. The shares rose 7.5p to 399p.

Mr Sainsbury said that the Essentials campaign, launched last autumn following price pressure from rival supermarket groups, had been successful. Sales of the 300 own- brand products that were reduced in price for the campaign had risen by an average of 20 per cent. 'It is achieving its purpose and will continue to be a major element of our marketing strategy,' he said.

The Essentials scheme helped the group to reverse the decline in sales disclosed in the January statement. That decline had been partly due to the success of the air miles promotion with British Airways in 1992, which had minimal impact in 1993, Mr Sainsbury said. Sales were now running about 0.3 per cent ahead of last year, despite prices around 0.2 per cent lower.

Essentials had cut gross margins but a change in the mix of products meant the decline was now less than the 0.4 percentage-point fall suffered immediately after the campaign was launched. 'Although the competitive environment is still very tough we currently expect gross margins to be maintained at around their present level,' he said.

The Sainsbury chain increased operating profits from pounds 715.9m to pounds 732.2m, largely the result of new store openings which chipped in 6.5 per cent of the 7.1 per cent increase in sales to pounds 8.9bn. It opened 23 stores last year, while 10 were closed, bringing the total to 341.

Unlike some rivals, which are cutting these programmes, Sainsbury plans to open about 20 stores a year. Mr Sainsbury said that Savacentre hypermarkets and the Homebase DIY chain would take an increasing share of investment. Ten new Homebase stores are planned this year, against seven last time, and several Savacentre sites are under consideration.

Shaws, the US supermarket chain, would also be expanded, Mr Sainsbury said. Its profits recovered sharply from pounds 31.5m to pounds 46.5m.

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