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Sainsbury's surprises on the upside

Half-year profits from supermarket giant Sainsbury's today surprised many analysts with pre-tax profits for the period up to £342 million from £258 million during the corresponding period last year. The company also announced sales growth of 3.7% to £11.15 billion however, when excluding fuel sales this figure is a very impressive 7.9% and reflects the growing status which Sainsbury's has in the retail market again.

Under the stewardship of Justin King there has been a marked turnaround in the fortunes of Sainsbury's and the company is looking to increase floor space by 15% over the next two years. However, despite these better-than-expected figures and substantial growth in underlying sales the company is still cautious about the short to medium term outlook for the UK due to economic uncertainty. In particular the company has highlighted reduced food price inflation which will have a detrimental impact upon short to medium term sales growth, placing more pressure on the company's cost base and suppliers.

On the whole, during the recent economic downturn the likes of Tesco and Sainsbury, to name but two, have performed very well having adjusted their promotions and stock to take account of the difficult economic environment. However, it is interesting to note that despite often better-than-expected figures from the major supermarket groups, they are still very cautious about the UK economy in the short to medium term. You have been warned!

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