Qatar-backed Sainsbury’s profit rise pushes its share to six year high

Britain's No. 2 grocer saw profits up 7%, while rival Tesco reported a fall

British grocer J Sainsbury, which is 25.9 percent owned by Qatar, showed its resilience to tough market conditions with a 7 percent rise in first-half profit, contrasting with a decline at market leader Tesco and lifting its shares to a near six-year high.

Sainsbury trails Tesco by annual sales and is battling Wal-Mart Stores' Asda to be Britain's No. 2 grocer, but has enjoyed 35 straight quarters of underlying sales growth, boosting its UK market share to a decade-high 16.8 percent.

Chief Executive Justin King said the group was well placed for more growth, even though he cautioned that any recovery in Britain's economy may take time to take effect as consumers' budgets are being stretched by below-inflation wage rises.

In February 2010, Qatar Holding bought 25.999 percent of the retailer. The firm is outperforming rivals with a strategy focused on own-brand products and investing in fast-growing online and local convenience store channels.

"It (Sainsbury) has seen off the dual threat of the fast-improving discounter Aldi and the premium Waitrose, giving Tesco a humiliating lesson in how it should be done," said John Ibbotson, director of the retail consultancy Retail Vision.

"The only question now is how long it can hang on to the hugely talented Justin King."

Sainsbury's own-brand sales are growing at more than twice the rate of branded goods, while online and convenience stores are the two fastest-growing areas in the grocery sector, as consumers increasingly use the Internet to shop and high fuel prices deter trips to town centres and out-of-town malls.

Sainsbury's online grocery sales rose by 15 percent in the half, while convenience store sales increased over 20 percent.

The group has also benefited from the success of its "Brand Match" price-comparison scheme, along with increased sales of non-food products, especially clothing, kitchen electrical and cookware.

In addition it avoided any involvement in a scandal over foods found to contain horsemeat when they were labeled as containing other meats.

Shares in Sainsbury, up 16 percent so far this year, were up 2.7 percent at 419 pence by 4.34 am ET on Wednesday, valuing the business at £7.8bn. The stock rose as high as 410p, its highest since early 2008.

Sainsbury's profit before tax and one-off items reached £400m ($637m) in the six months to September 28.

In stark contrast, Tesco last month posted a 1.5 percent fall in first-half UK trading profit.

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