Sainsbury's plans new stores through £445m fundraising
Sainsbury's is tapping investors for £445m to accelerate its store opening plans as Britain's third largest supermarket plays catch up with larger rivals Tesco and Asda.
The grocer said it wanted to take advantage of "attractive opportunities" in the soft property market, with the plan revealed today alongside a strong quarterly trading update. The retailer said like-for-like sales rose 7.8% in the 12 weeks to 13 June. That was at the top end of analyst expectations and a new record for the resurgent grocer, improving on 6.2% recorded in the fourth quarter of previous financial year.
Sainsbury's said the money would be raised through the combination of an equity placing and a bond issue. Justin King, its chief executive, said the move would enable it to grow "further and faster". Retailers are finding it easier and cheaper to acquire and develop new sites in a bombed out commercial property market.
"The fundraising will provide us with the financial flexibility to take advantage of current opportunities to grow our business further and faster," he said. "We can speed up our growth in areas of lower market share, maintain the strength of our balance sheet and invest in the long-term growth of the business."
The retailer said the extra funds would enable it to expand its store base by 15% - instead of the 10% previously indicated - over the next two years. That equates to around 2.5m sq ft of new trading space and means Sainsbury's is on track to add more footage in the next two years than in the previous five.
At its annual results last month King said the group had the "greatest growth potential" of Britain's big four grocers: "Sainsbury's lack of development during the 90s and noughties means we have much more potential in our business."
Tesco usurped Sainsbury's as British market leader in 1995 and is now almost twice its size. Sainsbury's has also been overtaken by Wal-Mart owned Asda and will now spend £2bn over the next two years trying to redress the balance. Finance director Darren Shapland conceded the fundraising was "slightly dilutative" but said it was worth it for the company to achieve its long-term potential.
Doing what Tesco did 10 years ago
The expansion drive will boost sales in the next financial year but will put pressure on earnings in the year just started due to extra interest payments and store opening costs. "Slightly disappointing that it's dilutive to earnings in the short term, but this should strengthen Sainsbury's position in the medium term," said Shore Capital analyst Darren Shirley. "They're essentially doing what Tesco did 10 years ago," he said, noting Sainsbury's plans to sell more non-food products.
King said the new space planned would deliver "significant" market share gains for the retailer with the growth to come from a mixture of new stores as well as extensions. It will also increase the brand's presence in the north of England and Scotland where it has fewer outlets. Sainsbury's also said it had acquired another nine stores from the Co-operative Group which is disposing of Somerfield stores after completing its acquisition of the chain earlier this year. Sainsbury's is paying £112m for 33 stores.
It has gathered momentum under King's leadership with 18 consecutive quarters of like-for-like sales growth now under its belt. He said the retailer continued to steal trade from rivals, with stores handling more than 18.5m customer visits a week.
The retailer, which is seen to have a premium market positioning, was expected to fare the worst of the big four in a downturn. But King said it had lowered 7,000 prices this year with customers recognising "the competitiveness of our offer" and were spending more in its stores.
1m transactions in a week
Sainsbury's said sales of its value "basics" range were growing at over 50% year on year while its TU clothing brand had recorded its "best ever quarter" with one 1m transactions in a single week. King said consumers were saving money where they could but were also "staying true" to their values with sales of its RSPCA Freedom Food chicken quadrupling compared to the first quarter of last year.
The update compares with yesterday's trading statement from market leader Tesco which reported like-for-like sales growth of 4.3% for the three months to 30 May, its best UK quarterly sales growth for two years.
Food retailers have thrived despite the wider slowdown affecting the retail sector. Within that Tesco's growth has lagged that of its three closest rivals Asda, Sainsbury's and Morrisons as a result of the drag effect created by weak general merchandise sales. The latest quarterly figures from Asda and Morrisons showed 8.4% and 8.2% like-for-like sales growth respectively.
Source : guardian.co.uk Wednesday 17th June 2009
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