When Tesco's new chief executive Philip Clarke unveiled results of the supermarket giant last week, he bemoaned its weak non-food sales and said the group needed to up its game. Judging from Sainsbury's full-year results some of the problems may be due to the success of the UK's third largest player in expanding into the area. Sainsbury reported that non-food sales rose three times as fast as its food sales and it has plans to push further into this market segment.
The retailer has performed robustly in a difficult environment and managed to increase like-for-like sales excluding fuel by 2.3 per cent. It used cost savings to minimise the impact of inflation on customers, but was still about to use efficiency savings to boost underlying operating margins by 14 basis points to 3.5 per cent.
The overall result also benefited from Sainsbury's ongoing expansion. The group added 1.5m square foot of gross new floor space and has exceeded its two year target of 15 per cent growth. The property portfolio has also been revalued and is now believed to be worth £10.5bn, up £700m.
Strip out property gains, and underlying pre-tax profits rose 9 per cent to £665m while EPS was up 11 per cent to 26.5p. Subject to revision, Seymour Pierce expect current year pre-tax profits of £734m and EPS of 29p.
|ORD PRICE:||356p||MARKET VALUE:||£6.7bn|
|TOUCH:||355-356p||12-MONTH HIGH:||397p||LOW: 312p|
|DIVIDEND YIELD:||4.2%||PE RATIO:||10|
|NET ASSET VALUE:||290p||NET DEBT:||33%|
|Year to 19 Mar||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Rated on 12 times forecast earnings the shares are more expensive than rivals, and even factoring in the property backing, plans to further increase floor space and non-food potential, the upside is limited. Fairly priced.
Last IC View: Fairly priced, 373p, 10 Nov 2010