The supermarket's improving sales trends help to underpin its chunky dividend.
This morning, J Sainsbury (LSE: SBRY) saw its shares climb more than 3%, after it unveiled improved sales in its latest market announcement.
A retail rebound
In a trading statement for the 10 weeks to 17 March, Sainsbury's proudly revealed a "strong finish to a good year", with total sales (excluding fuel) in its fourth quarter up 5.1%.
However, like-for-like sales growth -- the industry's headline measure of retail success -- was more subdued, climbing 2.6% excluding fuel. The good news for Sainsbury's is that this is ahead of 2.1% like-for-like sales growth for 2011-12 as a whole, so its sales are gradually gaining ground.
These sales trends would have been even stronger, were it not for lower petrol-price inflation and reduced fuel sales over the past 12 months. Sainsbury's also reported two other positive trends: it hit its target to grow floor space by 7.3% in the year, plus its convenience, online and non-food divisions all grew faster than the wider market.
In 2011-12, the FTSE 100 firm opened 19 new supermarkets, extended 28 and replaced four. Its estate of smaller, convenience stores also grew by 69 sites, thanks to 73 new additions and four closures.
Trouncing Tesco
In January, Sainsbury's bitter rival, market leader Tesco (LSE: TSCO) released its first profit warning for more than two decades. Just last week, Tesco's UK boss stepped down to be replaced by the group's chief executive, and it owned up to a pricing mix-up for new Apple iPads.
Sainsbury's revival at Tesco's expense must greatly please its CEO, Justin King. While Tesco's market share has dropped to levels not seen since 2005, Sainsbury's is beating the market. Indeed, like-for-like sales growth is marching upwards: over the past four quarters, growth has been 1.9%, 1.9%, 2.1% and, most recently, 2.6%, so the group's strategy is gaining momentum.
Sainsbury's King described this as a "good performance for the year against a challenging backdrop" and credits it to the retailer's strategy of "delivering universal customer appeal."
King singled out Sainsbury's own-label ranges for praise, thanks to a 10% rise in basics sales and a bumper, near-20% increase in sales of its premium Taste the Difference products. Also, he applauded the group's Nectar loyalty programme and Brand Match promotion (which seems to be faring better than Tesco's ill-fated Big Price Drop campaign).
Sainsbury's also claims to be the fastest-growing online grocer, thanks to sales growing at over 20% a year. Both basket spend and customer numbers are rising, with an average of 165,000 online customers a week.
Value for money
Looking ahead, Sainsbury's expects a sales boost from two national celebrations: the Queen's Diamond Jubilee and the London 2012 Olympics and Paralympics.
As I write, Sainsbury's shares trade at 316.3p, up 3.5% this morning, which values the group at £5.9 billion. At this price, they trade on a forward price-to-earnings ratio of 11.2 and offer a prospective dividend yield of 5.1%, covered 1.8 times.
Given Sainsbury's return to reporting rising revenues, profits and cash flow, these ratings are too modest. Hence, value investors and income-seekers should shop around for some Sainsbury's shares!
> Get the latest on investing and the markets, direct from the desk of David Kuo. You'll also receive a special free report on '10 Steps To Making A Million' if you join The Motley Fool Collective today.
More from Cliff D'Arcy:
