With the group's recovery story continuing the recession has largely passed J Sainsbury (LON:SBRY) by. Going forward the potential for the group is to increase its presence in non-food areas and outside of Southern England. In the meantime the core business looks set to continue to improve its efficiency providing a boost to the bottom line.
During 2009, J Sainsbury opened 51 convenience stores. The group expects that the opening rate is set to double to 100 in the years ahead whilst online groceries are also performing well with growth of 20%.
Turning towards non-food and at present supermarkets currently account for less that 15% of the £166bn of the retail market in the UK. The industry hopes to increase this by offering high-street style but at supermarket prices.
During 2009, the growth of non-food was three times faster than for food illustrating the potential for this area. A good indicator of this is that the group is now the seventh largest childrenswear retailer in the UK; supermarkets like Sainsbury’s have also been aggressive in moving into video games.
Geographically J Sainsbury also believes it remains under-represented in certain parts of the country with 40% of the UK not living within a 10-minute drive of a Sainsbury's store. If a line were drawn from Bristol through the Midlands and then to King's Lynn the group would have a 20% market share south of this line and 10% above it.
Financial services are also potentially a growth area for the company as it can offer extra Nectar points for customers who take up financial services offered by the group. Award winning financial services which the group is offering include credit cards and home insurance.
In 2009, Sainsbury's had a market share of 16.1% which was an increase of 0.2% on 2008. The group also grew retail space by 6.8% in 2009 by adding 1.1 million sq ft and the additional space has been performing above expectations. For 2010/11 the plan is to grow space by 8% which will help meet the target of 15% growth in the two years to March 2011. The internal rate of return on the new space is expected to be 15%.
Turning to the financial results and total sales roles 5.1% while like-for-like sales increased by 4.3%. In fact like-for-like sales have climbed by nearly 25% over 5 years illustrating the scope of the turnaround.
Management expects 2010 to be a tough year and in this context it is interesting to note that rival Asda (owned by Wal-Mart) reported a fall in Q1 sales which was the first quarterly fall for Asda in four years. Momentum should, however, continue at Sainsbury's given that there still appears to be scope to improve margins.
Turning to the balance sheet, the group’s property portfolio is a key asset with net debt of £1.5bn secured against it which allows very low borrowing costs. During the year the property the group has increased in value by £2.3bn to £9.8bn and set against this the pension deficit of £303m is easily manageable.
Filed Under: Supermarket,
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