How J. Sainsbury Has Fared During 2012

LONDON -- J. Sainsbury  (LSE: SBRY.L  ) and its shares have been on a tear this year -- after trailing the apparently unstoppable Tesco for years, it has fought back strongly to become the clear investor favorite. While Tesco's share price has tested shareholders' patience -- dropping 25% this year -- Sainsbury's shares have gained 16.9% to hit 354.20 pence so far in 2012, making the share one of the year's better performers in the FTSE 100. During the same time, the blue chip index has gained about 4%.

The grocery and related retailing firm competes with fellow big brands TescoMorrison, and Asda, which is owned by Wal-Mart.

In May, Sainsbury's reported final results for the year ending March 17, 2012, posting sales up 6.8% to 24.5 million pounds, and more than 100 million pounds in operational cost savings helped boost underlying profit before tax up 7.1% to 712 million pounds. Earnings per share increased 6% to 28.1 pence, with a proposed full-year dividend of 16.1% (up 6.6%).

The company was particularly proud of having reached nearly 17% market share, its highest in about a decade -- driven in large part by its Brand Match price promise and a new contract signed with Nectar.

Reflecting on the strong performance, chief executive officer Justin King said: "We are succeeding by understanding what our customers want, supporting and inspiring them to Live Well For Less. Delivering quality and value is a compelling offer, in tune with what today's savvy shoppers want."

And looking to the future, King reaffirmed: "Brand Match, combined with our use of coupon-at-till, has improved Sainsbury's price perception while retaining the benefits of our heritage in quality and service. We have continued to invest in the future of the business, including opening a further 1.4 million square feet of gross space, while managing costs and increasing net underlying margins."

And increase its margins it did! In the most recent quarter, Sainsbury's defied the high-street slowdown to post more strong results, including a 1.9% same-store sales (those from stores open more than a year). Total sales, including from new shops, increased 4.3%.

CEO King pinned the success on Brand Match and the supermarket's successful own-label ranges, in particular Taste The Difference, which enjoyed double-digit growth. He predicted the supermarket's current campaign, Live Well For Less, will be another winner.

No doubt investors will be watching the next earnings release (scheduled for Nov. 14, 2012) as well as how successful Sainsbury's is this Christmas season, as it is of course a key battleground for supermarkets -- and last year's big price cut left Sainsbury's with a bit of a New Year's hangover.

But clearly Sainsbury has demonstrated to shareholders that it's learned its lesson.

And despite performing quite well so far in 2012, the shares still offer a handsome yield of 4.5%, covered 1.7 times. Reduced spending on giant hypermarkets should mean even better cover going forward.

The stock isn't particularly cheap on a forecast price-to-earnings ratio of 12.7 -- about equal to the market as a whole -- and rising food prices or increased pricing competition could dent its margins. But if you're looking for a tasty blue chip to hold for the long term, you could get in line for some Sainsbury's.

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