Carburton Street, London -- J Sainsbury (LSE: SBRY) this morning posted interim results that were largely in line with market expectations. The revival at the UK's second biggest grocer appears to be going to plan with Sir Peter Davies continuing to improve profitability through greater efficiency. In the 28 weeks to October, Sainsbury reported an 8% rise in sales to £9.6b and underlying operating profit increasing 10% to £366m.
The improved results at Sainsbury have been achieved without erosion of operating margins, but through a better use of the assets at the company's disposal. Operating margins at the interim stage were largely unchanged from last year at 3.4%, but the asset turnover ratio, which is a measure of how efficiently the assets of the company are used to generate sales, rose 5%. This improved efficiency could be attributed to the better supply chain that has been put in place and the renovations and refurbishments that have taken place at the company's UK supermarkets.
Interestingly, Sainsbury plans to deploy more resources into information technology. The company has implemented a new data warehouse to enable it to make better use of the information gained from its customer reward card scheme. It has been widely recognised that Sainsbury has, to some extent, under-utilised the valuable information that can be extracted from its customers. It is also no secret that rival grocer Tesco (LSE: TSCO) has used its own loyalty card scheme, the Tesco Club Card, with great effect to market goods and services at specific customers.
Food retailing is now a sophisticated business and while the pile-them-high-and-sell-them-cheap merchants will still have a place in the grocery market, the real winners will be those that can continue to improve efficiency through successful marketing.
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