J Sainsbury Full-Year Profit Surges, Plans Non-Food Growth

British supermarket group J. Sainsbury reported a 42% rise in annual profit and unveiled a new plan to create 3.5 billion pounds ($6.9 billion) of sales growth as it expands into clothes and homeware.

Underlying profit before tax reached 380 million pounds for last year, at the high end of analysts' expectations after lower prices and new ranges of organic and premium foods helped draw more shoppers through Sainsbury's doors.

Chief Executive Justin King, nearing the end of his three year "Making Sainsbury's Great Again" strategy, unveiled an updated set of 2007-2010 targets for the retailer whose core shareholders in April frustrated private equity bidders.

While the new strategy includes manoeuvres suggested by private equity -- such as expanding stores and ramping up its non-food sales -- Sainsbury rejected their main suggestion it sell its lucrative real estate to unlock value.

"Our view is that our property ownership strategy and the financing structure that sits behind it is appropriate for our business," King told reporters, adding he did not rule out a property deal in the future.

Sainsbury's shares traded flat at 557 pence, in line with the DJ Stoxx index of European retailers, having gained 36% so far this year on bid speculation.

One of Sainsbury's largest shareholders, Robert Tchenguiz, who has called on the group to realise value from its freehold property portfolio, was not immediately available for comment.

Numis Securities Steve Davies expected some short-term disappointment about the lack of change to the balance sheet, but applauded Sainsbury's higher valuation of its property portfolio to 8.6 billion pounds.

"We expect to raise our target price to around 650 pence per share ... The outlook for the operating company looks very strong indeed," he said in a note.

New Targets

Like-for-like sales excluding fuel grew 5.9% and it proposed a final dividend of 7.35 pence per share to give a 21.9% increase in the full-year payout to 9.75 pence.

King, Sainsbury's CEO since 2004, set a new target of 3.5 billion pounds of sales growth by 2010 with the expansion funded by 2.5 billion pounds of capital investment from cash flows.

The new plan extends an earlier strategy to add 2.5 billion pounds of sales growth by 2008.

A third of that growth will come from non-food, while more than 50% of its property is to be developed to add 10% of new space split across food and non-food.

Supermarkets see non-food as the biggest growth area in Britain with leader Tesco and number two supermarket group Asda, part of Wal-Mart Stores, already aggressively expanding their clothes and homeware sales.

Asda is due to open two more Asda Living homeware supercentres this month, Wal-Mart said on Tuesday.

King said Sainsbury had a "huge potential" to develop its non-food business and it would focus on clothing after it had proved "the star performer in the past year or so."

It aims to have 60 large supermarket stores of more than 55,000 square feet within three years where it will sell non-food and grow online retailing to 200 stores from 114.