Sainsbury's Profit Up 11%, Speeds Up Expansion

J Sainsbury, Britain's third-biggest grocer, posted an 11 percent rise in annual profit and said it was pressing ahead with expansion into convenience stores and non-food ranges despite the recession.

The 140-year-old company, which runs over 500 supermarkets and more than 275 convenience stores, said on Wednesday it made a profit before tax and one-off items of 543 million pounds ($824 million) in the year to March 21.

Sharon Lorimer

Analysts' median forecast was 537 million pounds, according to a Reuters Estimates poll of 18.

Sainsbury shares closed 1.5 percent lower Wednesday, after closing at 340.25 pence on Tuesday, which valued the business at about 5.9 billion pounds.

Sainsbury said it planned to open 50 convenience stores this financial year and 100 in 2010-2011, and it would launch a non-food online offering by September.

The firm, which also reported strong demand for its TU clothing range and a profit at its Sainsbury's Bank joint venture, said it planned to increase selling space by 5 percent in 2009-10, compared with 4 percent growth in 2008-9.

Sales rose 5.7 percent to 20.4 billion pounds and the full-year dividend was lifted 10 percent to 13.2 pence.

The firm said it was looking for a new chairman to replace Philip Hampton who recently took the helm at Royal Bank of Scotland .

Sainsbury was the fastest-growing of Britain's big four grocers over the Easter holiday period, beating rivals with reputations for lower prices like Tesco and Asda , with the help of marketing campaigns such as "feed your family for a fiver".

But Sainsbury's underlying retail margin — up 26 basis points at 3.26 percent — lags rivals, in part because of its higher rent bill. Tesco's British trading margin is 6.2 percent.

"They're pretty much in line," Bernstein analyst Chris Hogbin said of the results, adding that progress on profit margins would be key for analysts' forecasts for 2009-10.

Analysts' current median profit forecast for this financial year is 588 million pounds, according to Reuters Estimates.

"On valuation grounds, I think people will prefer Morrison or Tesco, which also has its international and services businesses," Hogbin said.

Sainsbury's shares trade at 15.1 times forecast earnings for 2009-10, above Tesco on 10.5 times and Morrison on 11.4 times, according to Reuters data.

The stock has performed broadly in line with the DJ Stoxx European retail index over the past year.

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