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Sainsbury third-quarter sales at top end of forecasts

By Mark Potter Shares in the 140-year-old firm, which had risen almost a fifth in value in the past month, were unchanged as it guided analysts away from raising profit forecasts because of the investment it was making in lower prices and promotions.
 
 
 
By Mark Potter

Shares in the 140-year-old firm, which had risen almost a fifth in value in the past month, were unchanged as it guided analysts away from raising profit forecasts because of the investment it was making in lower prices and promotions.

Retailers are mostly struggling with falling sales as shoppers cut spending amid rising unemployment, sliding house prices and fears of a deep recession, but supermarkets are still growing thanks to their focus on essential items.

The Bank of England is expected to cut interest rates at midday on Thursday to their lowest level since the bank was founded in 1694, in a bid to limit the downturn.

Sainsbury, which runs over 500 supermarkets and about 275 convenience stores, said sales at shops open at least a year, excluding fuel, rose 4.5 percent in the 13 weeks to January 3.

Forecasts ranged from up 2.5 to 4.5 percent, with an average of 3.8 percent, according to a company poll of 13 analysts.

The firm said it had its best ever Christmas, with over 18 million customers a week during the quarter and 22.6 million in the seven days before Christmas, including its busiest ever trading day on December 23.

Demand was led by a sales surge for its budget "basics" range, up more than 40 percent year-on-year.

In contrast to the retrenchment elsewhere in the retail industry, Sainsbury said it would create up to 4,000 new jobs this year due to its plans to open more convenience stores.

"Good results," said Bernstein analyst Chris Hogbin. "Importantly, they are retaining customers as they trade down."

But, Seymour Pierce analyst Freddie George was concerned the food market is getting more competitive as grocers battle to lure cash-strapped shoppers with promotions and price cuts.

Sainsbury shares were unchanged at 322.75 pence by 11:50 a.m. British time.

PROMOTIONS

"The level of promotional activity is increasing; consumers are continuing to trade down, a trend that is likely to accelerate in Sainsbury's southern heartlands," he said.

Sainsbury Chief Executive Justin King said promotions accounted for a little more than 30 percent of total sales, up slightly from the second quarter, and that he expected the proportion to be around 30-34 percent in the months ahead.

Finance Director Darren Shapland said he did not expect analysts to change full-year profit forecasts, which average about 525 million pounds (348 million pounds), despite the stronger than expected sales figures.

"The economic environment remains particularly challenging and we expect this to continue in 2009," King said.

Sainsbury is associated with higher quality, and also higher prices, than its major rivals and so was widely tipped to be a casualty of the economic slowdown.

But it has caught the mood of the times with campaigns such as "Feed Your Family for a Fiver," and recent industry data from TNS and Nielsen suggest it is holding market share.

King said the firm was benefiting from its mid-market positioning, signalling it was gaining custom from upmarket rivals like Marks & Spencer, while holding on to increasingly value-conscious shoppers with its own-brand ranges.

Tesco, the biggest supermarket group, has taken a different tack, launching a new range of discount branded goods to tackle surging sales at hard-discounters like Alid and Lidl. Tesco reports Christmas sales on Tuesday.

Sainsbury also said it had sold the freehold on two stores for 86 million pounds, with a net initial yield of 5.5 percent.

Hogbin said this was a good yield, and encouraging news for investors given Sainsbury's extensive property holdings.

(Additional reporting by Simon Falush, Editing by James Davey, John Stonestreet and Dan Lalor)

LONDON (Reuters)
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