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Another solid year of trading at Sainsbury’s has seen further market share gains and like-for-like sales growth despite economic conditions. The group has also moved ahead to become the seventh largest clothing retailer by volume in the UK. 

The supermarket concept still has legs as it branches away from food.  Sainsbury’s ambition is highlighted by the group’s TU brand which is looking to launch women’s fashion lines designed by Gok Wan later this year.

Sainsbury’s aims to devote 40pc of space to non-food items which the group is hoping will come to account for a third of sales growth.  The group points to only around 15% of the UK non-food market being accounted for by supermarkets as a sign of the potential.  Currently a quarter of sales (ex-fuel) come from non-food but this is expected to grow strongly over the next ten years.

Looking at the operational performance of Sainsbury’s and the group saw a slight gain in market share to 16.3%, from 16.1%, over the 52 weeks to 20th March 2011. Like-for-like sales were also positive at 2.3% for the financial year ended 19th March 2011. 

Turning to growth and with 1.5m sq ft of new store space delivered in 2010/11 the group exceeded its 15% target by just over 1%. This is driven by 68 new stores opened last year bringing the total number to 934. 

The focus is on convenience stores and geographic areas where Sainsbury’s isn’t strong - Scotland, the South West and Wales. Local convenience stores broke through the £1bn sales barrier for the first time and online sales increased by 20%.

With a good operational performance driving like-for-like sales and underlying store growth Sainsbury’s saw total revenue increase by 4.9% excluding fuel. This came through to the bottom line with underlying profits before tax up 9% to £665m and underlying EPS up 10.9% to 26.5p. As such the group has increased the dividend by 6.3% for the full-year to 15.1p.

Going forward clearly the economic picture for the UK is looking difficult.  The last quarter of Sainsbury’s was particularly weak although the Xmas quarter did see record sales.  These pressures also affect the group itself but so far it has managed to generate cost savings to offset inflationary pressures - the underlying operating margin actually rose by 14 basis points.

However, tough economic conditions provide opportunities for supermarkets to attract consumers to their own-brands and loyalty schemes and the group expects further like-for-like growth for the supermarket sector this year.  As such the group looks set to make further gains in its underlying pre-tax profit illustrating the defensive nature of the sector. 

Over the next ten years we will also long-term growth outside of food with it being notable that Sainsbury’s bank, although small, saw its third consecutive year of profits growth.   The property assets are a distinguishing feature for the company as the current value is estimated at £10.5bn. This ensures access to finance when needed and a robust balance sheet. As such the dividend yield of around 4.6% for the current year looks to be well supported.

This report was produced by Senior Research Analyst Andrew Latto.