Sainsbury's first half excels on strong food and stronger non-food - UPDATE

13th Nov 2013 07:03

- Sales up 4.4 per cent, EPS up 9.2 per cent- Food strong, non-food even stronger- Convenience up 20 per cent and online up 15 per centBoosted by fast growth from its own-brand food and an even faster range of non-food, Sainsbury's boasted of its largest market share for a decade and announced a 35th quarter of consecutive like-for-like sales growth.The FTSE 100 group claimed a market share of 16.8% of the UK, helping like-for-like sales grow 1.4% in the first half of its financial year against what was a strong previous period. Total sales including fuel grew 4.4% to £13.95bn and operating margin growth impressed analysts with six basis points to 3.47% to help lift pre-tax profits 7% to £400m. There was no first-half analyst consensus available. A 5p interim dividend was proposed, a 4.2% year-on-year increase. The grocer, which opened six supermarkets and 50 convenience stores during the period, said its own-brand food grew at over twice the rate of branded edibles and that its non-food products, merchandise and clothing, grew at roughly twice the rate of food."Customers who buy general merchandise and clothing as well as food in our stores, shop with us more frequently and spend more than food-only customers," the company explained.Sainsbury's extended its own-brand into general merchandise and re-launched the 'Tu' clothing brand.The 'basics' value range endured a marginal sales decline and management already claimed progress in re-launching the range, which is still bought by 70% of customers. The twin growth engines of convenience stores and online both provided further encouragement. With roughly two 'Local' stores opening per week, the convenience business continues to grow by more than 20% year-on-year and is expected to overtake the number of supermarkets in the portfolio in the current financial year. The online business, where customer total spend is more than double the average supermarket-only shopper, grew at 15% and reached £1bn in annualised sales in the second quarter.The group, which is on track to take full ownership of Sainsbury's Bank at the end of January 2014, said it was on track to make £100m of cost savings over the year said, looking further forward, that it saw plenty of opportunities for long-term growth as it has "less than five per cent market share in around one-third of UK postcodes". The bottom line was hit by a £92m impairment from a property review but a one-off credit of £158m as it closed it defined benefit pension scheme. Underlying earnings per share increased 9.2% thanks to a lower underlying tax rate to 16.6p.Broker Jefferies argued the main news was the group's return to, admittedly limited, positive operational leverage with earnings margin growth despite major promotional increases at since the previous half-year. That the group has managed this on 1.4% like-for-like growth, which is "very good by industry relative standards, not so relative to cost inflation", suggests Sainsbury's has made good progress on operational expenditure and/or helpful product mix developments, perhaps from clothing.Fellow broker Panmure Gordon praised Sainsbury's as "the only Big 4 grocer that is taking market share, and that comes from being the only one, in our view, that isn't in the process of rectifying previous strategic mistakes, whether it be lack of exposure to growth channels - convenience-stores and online - in the case of Morrisons or a portfolio of overly large stores in the case of Tesco." New analyst Graham Jones maintained a 'hold' recommendation and hiked the 12-month price target from 400p to 425p on the assumption that the current rating and a 4.4% dividend yield will roll over to 2015 in due course.Shares in Sainsbury's were up 2.9% to 410.5p by 10:09 on Wednesday.OH