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Sainsbury’s profits rise again

Category : Business

Sainsbury’s said it had outperformed competitors and celebrated the ‘milestone’ of non-food sales reaching £1bn for the first time

Profits at Sainsbury’s have risen again as the supermarket maintained its run of success under chief executive Justin King.

It came as the retailer also announced it was taking full control of Sainsbury’s Bank in a £248m deal to buy the 50% stake held by taxpayer-backed Lloyds Banking Group.

Full-year results to 16 March showed underlying profits up 6.2% to £756m, though the bottom-line pre-tax figure fell 1.4% to £788m when property disposals were included.

King, who took over at the supermarket amid sliding sales nearly a decade ago, remained bullish about its prospects despite the economic downturn.

He said: “Whilst we see no near-term change in the current economic situation, we remain confident that by continuing to invest in our long-standing strategy and by understanding and helping our customers, we are well positioned for future growth.”

Total sales rose by 4.6% to £25.6bn, driven by 33 consecutive quarters of like-for-like sales growth.

Sainsbury’s said it had outperformed competitors, citing figures from earlier this year which showed it had achieved 16.8% market share, its highest for a decade.

The results were boosted by what it called the “milestone” of non-food sales reaching £1bn for the first time.

Grocery online sales were nearing the £1bn mark, while Sainsbury’s convenience stores took £1.5bn, the company announced. During the year, it opened 14 new supermarkets, eight extensions and 87 convenience stores.

The supermarket, which sponsored the Paralympic Games and was also involved in the events to celebrate the Queen’s Diamond Jubilee, said: “It has been a year like no other.”

David Tyler, chairman of Sainsbury’s, said the decision to take full ownership of Sainsbury’s Bank would “benefit both customers and shareholders and allow its full potential to be realised”.

The bank, launched in 1997, has delivered five successive years of profit growth, the company said. Profit before tax in 2012/13 was £59m.

King said: “We see a great opportunity to increase the number of bank customers by offering accessible, high- quality financial service products which reward customers who bank and shop with us.

“We expect the bank to become an important source of profit diversification and growth, building on the strengths of our core business.”

Food scares, the big four and F1: Justin King of Sainsbury’s on the retail race

Category : Business

The supermarket boss insists that he only wants to overtake Asda – but the Grand Prix rumours won’t go away

As the horsemeat scandal reached its peak in February, the bosses of Britain’s biggest supermarkets and suppliers were summoned to Whitehall to explain themselves.

Packed into a Defra meeting room on a Saturday morning, the shopkeepers were given an almighty dressing down and ordered to take responsibility for one of the biggest food adulteration revelations of recent years.

Among them was Justin King, at 51, and after nearly a decade at the helm of Sainsbury’s, regarded as the elder statesman of the grocery business. He was, he says, determined not to take the criticism lying down. He accused government officials of failing to understand the industry, and even threatened to call on the prime minister to demand a ceasefire.

Three months on, with horsemeat found in beefburgers, bolognese sauces, lasagnes and corned beef – but not in any Sainsbury’s products – King still recalls the behaviour of those running the country with exasperation.

He said: “That moment was when politics and business were at their most tense, because politicians felt they had to be saying something. The reason no one was saying anything was because we were doing the responsible, trustworthy thing, which is understanding the issue before we shouted about it, while the dynamic of politics is the opposite.

“In business, we understand it and then we talk about it, while in politics they talk about it and at some later date work out whether their understanding fits with what they said about it some weeks before.”

It was perhaps surprising that King wanted to take such an active role in tackling the scandal on behalf of the industry, given that his own supermarket group had come through unscathed while bitter rivals Tesco and Asda were caught out.

But the new old man of retail, having worked for PepsiCo, Marks & Spencer and Asda before his nine years at Sainsbury’s, says he has seen far worse and that the public is not quite as worried about horsemeat as might be expected.

“We’ve had foot and mouth, bird flu and BSE, all of which were examples where the supply chain was challenged, so this is nothing new. It’s all about trust and acting in a trustworthy way.

“People are pretty realistic. If you Google horsemeat, [a lot of the hits] are horsemeat jokes. So there was an immediate juxtaposition in the consumers’ minds that it was serious but they got a lot of enjoyment from it, too.”

However, King is keen to stress that businesses must stop feeling sorry for themselves and realise that the customers are victims too.

“I don’t think it is fair enough for retailers affected to say they were victims. I had a very simple view – which is that I’m on the same side of the table as the customer.

“The second you say you’re a victim in this situation, even when you are, you put yourself on the wrong side of the table. The real victims are the consumers, who have paid their hard-earned cash.”

This week, the City will see that Sainsbury’s has been largely unaffected by the scandal. Full-year results released on Wednesday will show sales up 4.6% to around £25.6bn, with underlying pre-tax profits expected to be up 5% to £748m.

The focus may now have moved away from horsemeat, but City investors will be keen to learn more about King’s future. He has been touted as the next boss of Formula One, when Bernie Ecclestone hands over the keys to the world’s most glamorous sporting franchise.

Last weekend that speculation reached a new pitch after the supermarket confirmed that headhunters Egon Zehnder had been retained to advise on King’s successor. Sources inside the company suggest the process could take a year and that the process is merely a matter of good management.

King refuses to quash rumours that he is interested in the F1 job – he only ever says that he is “not aware of a vacancy”. He is a huge racing fan and has helped his son Jordan to become one of the most promising drivers of his generation.

But if the call from Ecclestone, F1′s diminutive owner, fails to come, a career in politics might appeal.

King is a former board member of the London Organising Committee of the Olympic and Paralympic Games, and was a member of David Cameron’s business advisory group – before they fell out over King’s objections to government plans to allow new staff to surrender employment rights in exchange for shares.

However, poor pay in the public sector could prove a sticking point for the businessman, who earned £3m last year – 20 times more than the PM.

On the subject of King’s future, analysts at Barclays wrote: “No CEO remains forever, and at some point Justin King will prove the press predictions correct and move on. However, he may be keen to be in charge when Sainsbury’s regains its number two market-share position from Asda – his former employer.”

That could happen later this year, after a remarkable 33 consecutive quarters of growth.

According to industry data from Kantar Worldpanel, Sainsbury’s is outperforming its rivals as the only big four supermarket to be increasing its market share. The grocer now accounts for nearly 17% of all the money spent on groceries in the UK, a slight rise on last year, at a time when Morrisons, Asda and Tesco all lost customers.

Sainbury’s successful Paralympics sponsorship, leading position in convenience stores and growing online presence have also helped, while Tesco’s decision to open no more megastores, and write off £800m on land it had bought for new developments but will now never use, may also give King cause to crow.

He was always angry about Tesco’s land-grab. “If you’re acquiring a site just a mile from an existing site, are you doing it because you think it’s valuable to trade, or because it stops a competitor?”

And his vitriol for the number one supermarket doesn’t stop there. He is equally scathing about Tesco’s new price promotion, which promises shoppers that Tesco’s prices for own-label and branded goods are cheapest. Having complained directly to Tesco and failed to reach a compromise, Sainsbury’s has now appealed to the Advertising Standards Authority. “We have exhausted everything we could with them [Tesco], so were left with no choice but to go to the ASA,” he says.

“You can’t have advertising saying that where your chicken comes from is important, while at the same time still sourcing your chicken from Thailand and Brazil, and then doing a price comparison with Sainsbury’s chicken, which is sourced from the UK. That is inherently unfair.”

Tesco said: “We use an independent agency to check prices of branded and own-label products at other retailers – online daily for Asda and Sainsbury’s, and, since they don’t have an online grocery service, twice a week at Morrisons stores. The basis for our comparisons is made clear on the price promise website.”

This may not be enough to soothe King’s feelings, but perhaps he will soon be directing his passions elsewhere. Less horsemeat, more horsepower?

Waitrose reports sales surge after avoiding horsemeat scandal

Category : Business

Supermarket says it is winning shoppers from Tesco after no horse DNA was found in its products

Unlike many of its rivals, Waitrose has benefited from the clean bill of health it was given during the horsemeat scandal, with the upmarket retailer reporting an 11% boost in sales in the past three months.

The company, which was unaffected by the appearance of horse DNA in any of its products, said customers trusted the stores over its competitors and that it had been winning shoppers from Tesco – one of the worst-affected grocers.

The managing director, Mark Price, said: “I think we’re a business that has got a heart and soul, which we haven’t lost through the economic downturn, and we want to help our customers while being true to our principles.

“There are moral issues in some of the ways things are produced and customers may not have as much money in their pockets, but want to know now more than ever where their meat has come from and that it has been treated fairly.”

Fresh meat sales increased 12% over the last three months, with prepacked beef sales up 15%. Customers topped 5 million over the quarter for the first time in the supermarket’s history, along with a 50% rise in online grocery sales, which are now worth £300m a year.

Although no horsemeat was found in Waitrose products, the company did discover pork in some of its beef meatballs. Price admitted: “That was embarrassing and we ended that relationship with the supplier. But we’ve since launched our own frozen processing plant, so we know exactly what goes into our food.”

The new factory will open next month and it means several frozen meat lines have been taken off Waitrose shelves as bosses wait for the new site to open.

The company, part of the John Lewis Partnership, now sources all its beef from the UK, including in its ready meals, sandwiches and fresh mince.

Waitrose corned beef is also being produced in the UK for the first time, after its rival Asda found the horse drug phenylbutazone – or bute – in its own-brand corned beef. This week Waitrose also announced that all fish would come from independently certified sustainable sources within three years.

According to the latest Kantar Worldpanel retail data, Waitrose’s market share grew to 4.9% in April, compared with 4.5% last year, gaining customers faster than Tesco, Asda, Sainsbury’s and Morrisons combined.

Price also believes one of the biggest causes of a shift to Waitrose has been the company’s price promise, matching Tesco on 7,000 items and also beating Sainsbury’s on some products.

He said: “We are less expensive than we were perhaps historically, but I think customers are now realising we match Tesco and in many cases beat Sainsbury’s on price. Also, some of the basic lines we sell are better quality than Tesco finest.”

Last year Waitrose sales were up 6.7% to £5.76bn, with an operating profit of £292.3m, up 12.2%. It led to staff earning a 17% bonus.

With Waitrose’s online service continuing to grow, it could end its exclusive product relationship with Ocado after it was revealed that the online grocer was in discussions with rival Morrisons over launching a delivery service.

Kipper Williams on retail sales and cold weather

Category : Business

‘Apparently, the British have only one word to excuse poor retail sales’

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Kipper Williams on M&S lingerie loss

Category : Business

Kipper Williams on M&S losing its lingerie boss

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Tesco profits down as it takes £1bn hit to quit United States

Category : Business

Supermarket group’s profits fall for first time in 20 years on Fresh & Easy exit and £800m UK property writedown

Tesco, Britain’s biggest retailer, confirmed it will exit its loss-making business in the United States, taking a £1bn writeoff that knocked its full-year profit down for the first time in two decades.

The group also wrote down the value of its property in Britain, by £804m, and took a writedown on its businesses in Poland, Czech Republic and Turkey of half a billion pounds.

The raft of announcements form part of Tesco’s fightback following a tough period for what was once one of Britain’s most consistently performing companies. Its full-year results also showed that growth in its core home market had slowed.

“The announcements made today are natural consequences of the strategic changes we first began over a year ago and which conclude today,” chief executive Philip Clarke said. “I’ve been working for Tesco for nearly 40 years and I can tell you this – it already looks, feels and acts like a different and a better business.”

The world’s third-largest stores group said on Wednesday it made a pretax profit of £1.96bn in the year to 13 February, down 51.5%.

It also reported a 14.5% fall in underlying full-year profit, largely reflecting the cost of a turnaround plan for the UK market, launched after a shock profit warning in January last year.

Despite heavy investment, the group said fourth-quarter sales at British stores open over a year, excluding fuel and VAT sales tax, grew 0.5% – a slowdown from growth of 1.8% in the six weeks to 5 January.

That was however at the top end of a range of forecasts of 0-0.5% and the strongest quarterly growth for three years, the company said.

Tesco’s £1bn pound fightback plan for Britain focused on more staff, refurbished stores, revamped food ranges and price initiatives – all aimed at reversing years of under-investment and halting a loss of market share to rivals like Sainsbury’s and Asda.

As it reviewed the British business, it also took a writedown of £804m on its property investments. The writedown on the operations in Poland, Czech Republic and Turkey hit half a billion pounds.

Tesco also said it had increased its provision to cover the possible mis-selling of insurance products at its Tesco Bank to £115m.

Earnings have also been hit by the impact of the eurozone debt crisis on eastern European markets, restrictions on store opening times in South Korea, and losses at the US business Fresh & Easy. It has decided to exit the US altogether.

Fresh & Easy, which trades from 199 stores and employs around 5,000, has absorbed more than £1bn of capital since its 2007 launch when Tesco was run by Clarke’s predecessor, Sir Terry Leahy, but has never turned a profit in a market where it competes with the likes of Trader Joe’s, Whole Foods Market and Wal-Mart.

“Tesco’s ignominious exit from the US will grab all the headlines but the truth is that even without the Fresh & Easy debacle the supermarket would probably still have seen its profits fall for the first time in 20 years,” said Phil Dorrell, director of retail consultants, Retail Remedy. “Slowly, things are getting back on track in the UK. The question now is can Tesco sustain its newfound momentum and increase profits in a still challenging global climate? 2013 is shaping up to be a critical year.”

Clarke put the venture, which contributes just 1% of group turnover, under review in December, saying an exit was likely.

Tesco’s chief financial officer, Laurie McIlwee, said there was “a lot of interest” in Fresh & Easy, with possible suitors for the whole business or parcels of stores.

“What we’re most interested in is those buyers that are interested in buying the complete business that we have in the US,” he said, pointing out that a complete sale would remove redundancy and onerous leasehold issues.

He said Tesco would not conclude the process for at least another three months.

The group made an underlying pretax profit of £3.55bn. That compares to analysts’ consensus forecast of £3.5bn, according to a company poll, and with £3.92bn made in the 2011/12 year.

M&S struggles in the multi-channel slow lane

Category : Business

Stakes are high for Marks & Spencer boss Marc Bolland as retailer struggles to adapt to today’s world of internet shopping and ordering

Not good, but not horrendous. That’s been the pattern of Marks & Spencer’s sales updates in its general merchandise division for about three quarters now, which is one reason why big shareholders’ dissatisfaction with chief executive Marc Bolland’s leadership has never quite reached boiling point. There is deep frustration, certainly, but also a grudging acceptance that there’s little justification in throwing out a boss who promised a three-year invigoration before the three years are up.

That statement holds even though Bolland was obliged to abandon his original three-year sales target after only one lap of the track. The compensating factor is that he has clearly revived the food business, which was regarded as the bigger problem back in 2010 – like-for-like sales were up 4% in the latest quarter and have been purring for a while.

But there’s no getting away from the fact that minus 3.8% in general merchandise, the seventh quarter in a row of decline, was poor. Bolland’s date in the last-chance saloon comes with the autumn/winter ranges, in stores from July and the first work from the latest set of clothing executives to try to discover a wow factor. If the autumn and winter collection is a flop, Bolland will struggle to survive in his £1m-a-year post.

The personal stakes, then, are clear. But it is also plain that there isn’t an alternative strategy to the one M&S has got – that is, shelling out huge sums to upgrade distribution and IT systems that belong, literally, to another century and struggle to adapt to today’s world of internet shopping and ordering.

Major fruits of the spending will arrive soon with a shiny new e-commerce distribution centre. A game-changer? Well, it will help. But a measure of how far behind the “multi-channel” curve M&S remains is this: website-related trade represents about 15% of its general merchandise sales, whereas Next’s Directory business is already up at 35% of group sales. At a rough approximation, one could say that M&S is about half a decade off the multi-channel pace.

It may be that one of Bolland’s mistakes was his failure to spell out to shareholders at the outset the size of M&S’s under-investment in distribution and logistics in the clothing division. Too late now; judgment day approaches.

Springwear, anyone? Clothes shops feel the chill

Category : Business

March fashion sales down 3.4% on same month last year, as some stores ask for deliveries of summer stock to be delayed

Retail grandee Sir Stuart Rose famously said “weather is for wimps”, but even the most hardened shopkeeper would have struggled to sell the current crop of springwear, which has sat motionless on clothes rails across the country as Britain endured a chilly early 2013.

High street fashion retailers have resorted to one-off sales and suppliers say some stores have asked for deliveries of new summer stock to be delayed while so many spring dresses, skirts and tops remain unsold.

In March fashion sales slumped 3.4% compared with the same month last year, according to accountancy firm BDO’s monthly high street sales tracker. Analysts believe Marks & Spencer, Rose’s former company, has suffered a larger drop. Visa’s UK expenditure survey suggests the clothing and footwear sector saw a 2.6% year on year fall in March.

Don Williams, head of retail and wholesale at BDO, said: “The weather can have a significant impact on fashion retail, and has undoubtedly had an impact on sales in the last month.”

Williams said the cold weather has had its perks – it helped retailers to shift any remaining winter stock, helping to offset poor demand for spring clothing.

On Thursday, Marks & Spencer will be the first of a handful of retailers updating the City in the next few weeks. Marc Bolland, Rose’s successor, is expected to say clothes sales were down by up to 5% in the past three months.

However, some analysts have suggested the poor weather could help Bolland, already under pressure to improve M&S’s fortunes, because the freezing temperatures have also affected rivals.

The company is already processing its summer offerings, with lead times of around six weeks, meaning current stocks need to be sold to make room. M&S has held flash sales online in an attempt to boost demand. The danger is that consumers could skip spring, and wait to update their wardrobe with summer clothing.

Williams explained: “Retailers fear shoppers will now hold out for summer lines, forcing them to clear spring stock by discounting, hitting even those stores that have continued to maintain tight stock levels and introduce greater flexibility into the supply chain.”

It appears suppliers are starting to suffer, with anecdotal evidence that some retailers are asking them to hold off on deliveries. John Miln, chief executive of the UK Fashion & Textile Association, which represents about 2,000 suppliers, said some of his members had been approached, but there was only so much space to store unsold clothes.

He warned: “The danger is all this extra stock could clog the system and the retailers are clearly planning for that blockage to not be terminal, because if there’s too much stock then it simply becomes worthless, and that’s no good to anyone in the chain.”

However, while the high street has suffered, the internet appears to have captured shoppers who would have been outdoors but for the weather.

The website BrandAlley, which sells discount designer label clothes, has snapped up last season’s leftover winter stock at a discount. Chief executive Rob Feldmann said: “As an online business we are able to move fast to react to the changing, and unpredictable weather conditions. This time last year we had very strong sales across swimwear and sandals.

“By contrast the last two weeks have seen sales of outerwear soar. We are up 63% on sales of coats and jackets in the last two weeks alone. Sales of sweatshirts and hooded tops have soared over 300%.”

Hilco to save HMV brand in £50m rescue deal

Category : Business

Restructuring specialist would acquire about 140 stores and safeguard 2,500 jobs

There might just be life in the old dog yet: Nipper, the mascot who has peered into a gramophone in HMV shop windows for more than 90 years, appeared close to being saved in a £50m deal that will safeguard 2,500 jobs and up to 140 branches of the UK’s last major high street DVD and CD

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Shop price inflation on the rise

Category : Business

Consumers under pressure as the cost of non-food goods increased for the first time in 15 months and shop prices rose at their fastest rate since December

Shop prices last month rose at their fastest pace since December as the cost of non-food goods increased for the first time in more than a year, new figures show.

Overall shop price inflation rose to 1.4% in March from 1.1% in February, according to the British Retail Consortium (BRC).

Food price inflation remained stubbornly high at 3.5% in March, piling more pressure on cash-strapped consumers, while prices of non-food goods started rising for the first time in 15 months.

Prices rose across health and beauty products, stationery and DIY and gardening goods and books, the BRC said.

It added that the rate of year-on-year price deflation in shoes, footwear and electrical goods slowed to 2.2% from 4.2% in February.

That meant overall non-food inflation stood at 0.2% in March, compared with 0.4% deflation in February.

Helen Dickinson, BRC director general, said the figures suggest “demand is strengthening and promotions are less widespread than last year”.

She said: “Total inflation is at its highest rate since December, again reflecting that many retailers went into the new year with less stock to clear so discounting is less extensive compared with 2012.”

Food prices continue to be driven by higher inflation in fruit, fish and meat, which is offsetting slower inflation for vegetables and dairy products.

But the BRC said the prolonged spell of cold and wet weather could lead to deeper discounting on spring lines emerging in figures for April.

Mike Watkins, head of retailer and business insight at Nielsen, said: “As discretionary spend for the next few months is expected to remain flat at best, what upward pressure there is on prices is not coming from the consumer at the moment.”