Sainsbury's has written off plans for 15 new supermarkets(Supermarket Display ), incurring a cost of £92m.
The announcement came as the chain revealed a better than expected rise in profits, resulting in its shares rising by 3%, making it the biggest riser in the FTSE on Wednesday.
Sainsbury's has moved ahead of rival Morrisons in terms of profitability for the first time and reclaimed its position as the UK's second biggest grocer a decade after falling behind Asda. It is the only one of the UK's big four supermarket chains to increase market share in the past year in the face of strong competition from discounters such as Aldi and upmarket stores(Supermarket Storage Display) such as Waitrose and Marks & Spencer.
Pre-tax profits, before one-off costs, rose 7% to £400m in the six months to the end of September. The company said that underlying sales growth, plus £55m in cost cuts and the addition of more convenience stores, which are more profitable than large outlets, all helped boost the bottom line. Total sales rose 4.4% to nearly £14bn .
Justin King, the chief executive, said he believed the supermarket was doing well because customers liked its mix of competitive prices and values, such as using ethical or British producers. "We believe our values make us different and customers give us credit for that," he said.
He denied that sales had been boosted by any rise in prices relative to competitors. "I categorically say that our prices are more competitive today than they have ever been ," he said.
But the supermarket(supermaket display) warned that its underlying sales growth was likely to slow in the next six months, particularly in the quarter to March. "The consumer backdrop remains challenging," said King. "The reality for individual consumers is that they are not seeing more money in their pockets as inflation is growing faster than wages."
He said consumers were still feeling gloomy, if better than last year, and he expected that to continue into 2014. "We are planning our business on the basis that we won't get any help from consumers getting richer," he said.
Despite that, King expects consumers to spend heavily on Christmas after carefully saving for the event throughout the year. He said they would look to save money by buying more own-label goods, which already make up more than half Sainsbury's sales.
Own-label food has been increasing at twice the pace of branded goods at Sainsbury's but the retailer admitted that sales of its cheapest range, Basics, had dropped back.
The range is currently being relaunched with some new products, including non-food for the first time, while some food items have been down-sized and offered at a lower price, in the face of heavy competition from the likes of Aldi and major rival such as Morrisons and Tesco which have both recently revamped their cheapest own-label ranges.
John Rogers, the finance director, said Sainsbury's had written off £92m relating to property because it had decided not to go ahead with plans to open supermarkets(display) on 15 sites, mostly redevelopments of land close to town centres, because changes to planning regulations meant it was easier to open out of town.
However, Sainsbury's continues to open about 10 new large stores a year and at least two convenience stores a week.
