Sainsbury's looks to splash out £2bn on store expansion plans

Wednesday, 17 June 2009

Sainsbury's is looking to raise £445m to fund a store expansion programme that will add 15% extra shop space to the supermarket's estate over the next two years.

"The capital raising announced today will maintain this strong position and give the company the financial flexibility to increase its capital expenditure to £2bn over the two years to March 201," said chief executive Justin King.

The supermarket chain today also announced it would acquire a further nine stores from the Co-operative Group for £29m, in addition to the 24 stores already purchased.

The capital will raised by a placing of new shares (to raise £255m) and an offering of convertible bonds (to bring in £190m).

The proceeds will be used to accelerate Sainsbury's growth by March 2011, which will add 2.5m sq ft of additional selling space.

Sainsbury's trading statement published today showed current "strong sales growth" with like-for-like sales, excluding fuel and VAT, up 7.8% in the 12 weeks to June 13.

The growth is said to have come through increased customer numbers and continued growth in basket size.

King said: "Over the past four years we have reinvigorated our business and demonstrated the strength of Sainsbury's brand with 18 consecutive quarters of like-for-like sales growth.

"The fund raising announced today will provide us with the financial flexibility to take advantage of current opportunities to grow our business further and faster.

"We can speed up our growth in areas of lower market share, maintain the strength of our balance sheet and invest in the long-term growth of the business."

He said Sainsbury's continued to demonstrate the success of its "universal customer appeal" through increasing levels of customer transactions, despite the current challenging economic conditions.

Sainsbury's non-food offering has continued to deliver good growth with strong like-for-like sales growth supported by additional space.

"Sainsbury's has the potential to accelerate its growth plans significantly by taking advantage of attractive opportunities within the current property market," said King.

"In addition, Sainsbury's is seeing more favourable conditions for increasing space growth due to reduced build and fit-out costs.

"Recent new store openings and store extensions have delivered better than expected returns and Sainsbury's has exceeded its own plans to grow supermarket space."

King said: "Sainsbury's has a strong balance sheet which is well supported by significant property assets and long-term debt."

The extra space will come from acquiring additional freehold and long leasehold sites to open more new stores and to "further develop the pipeline of future store openings, taking advantage of current opportunities in the property market".

The retailer will also speed up the development of the store estate through extensions, driving additional non-food ranges and improving the food offering; and it will contine the accelerated growth plans for the convenience estate, as previously announced, with plans for 50 new stores in 2009/10 and a further 100 stores in 2010/11.

Caroline Gulliver, at analyst Execution Ltd, said: "Sainsbury's capital raising highlights its lack of financial flexibility resulting from its low level of operating cash flow, profit margins and returns.

"We remain sellers believing that that the premium stock price rating is discounting too much profit recovery, too soon."

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