Asda reports a 6% profit increase

Asda's operating profits rise by £51m to £857m on sales of £21bn last year despite new chain running up £30m losses.

Asda's profits increased by more than 6% last year despite its new chain of small stores running up losses of more than £30m.

Britain's second largest supermarket bought Netto's UK chain for £752m in 2010 but finished refurbishing all 147 of the small stores only at the end of last year. In accounts filed at Companies House, Asda said the former Netto stores made an operating loss of £31.4m on sales of £416m.

The accounts show that overall operating profits at the Wal-Mart-owned grocer increased by £51m to £857m on sales of £21.8bn in 2011. Like-for-like sales, excluding petrol and VAT, rose 0.5%, which was better than the near 1% decline reported by market leader Tesco in the year to February.

"The [Netto] stores did incur a loss during the first year of acquisition, however these losses were planned and reflected the costs of the integration and conversion costs," said a spokeswoman for Asda. "The stores actually traded ahead of expectations." The acquisition helped Asda increase its market share by 0.4 percentage points to 17.3% in 2011, cementing its position as Britain's second largest supermarket chain. The accounts also reveal that its website enjoyed growth of more than 10% across food, general merchandise and clothing.

In the directors' report, the retailer comments that 2011 had "continued to be a challenging period for the economy and consumers. In this context Asda had a successful year in continuing to build trust with customers who are increasingly selective about what they buy and where they shop."

When Asda chief executive Andy Clarke last updated analysts in August, he said the grocer's no frills promise of "everyday low prices" was cutting through a noisy market place where the major supermarkets are bombarding shoppers with money-off coupons and petrol promotions. It reported a 0.7% increase in like-for-like sales for the second quarter of 2012, which marked a slowdown from the first three months of the year, when its growth was 2.2%.

More recent data from research firm Kantar points to Asda outperforming a depressed grocery market with sales growth of 4.5%, although the gap is narrowed as the Netto acquisition drops out of the year-on-year comparisons. Its market share reached 17.6% in the 12 weeks to 2 September .

To attract new shoppers, Asda has also been working on improving perceptions of the quality of its food after Clarke acknowledged, when he took over in 2010, that it did not measure up to rivals. It has since invested more than £100m reformulating its food ranges and has teamed up with Leiths School of Food and Wine in London to launch a new product range.

Source : Zoe Wood - The Guardian
www.guardian.co.uk/business/2012/oct/04/asda-profits-rise