Asda delivers storming full-year sales but profits slip

Author: By James Thompson

The Wal-Mart-owned grocer said total sales surged by 11 per cent to £18.6bn
over the 12 months to 31 December 2008, compared with £16.7bn the previous
year, as its low-price message struck a chord with consumers during the
downturn. But pre-tax profits at Asda, which unveils its third-quarter sales
on Thursday, slipped to £520.4m in 2008, down from £532.7m the year before,
according to accounts filed at Companies House over the weekend. The grocer
said the fall in pre-tax profit was due to the impact of an accounting
adjustment for share options in Wal-Mart granted to Asda employees, which
resulted in an increase in share option costs of £87.7m. Excluding this
impact, Asda said its underlying profits ?grew broadly in line with sales
and were ahead of internal targets?.

Asda said it paid dividends of £160m last year, compared with £200m in 2007,
to the group’s UK parent company.

On Tuesday ahead of the grocer?s Q3 results, TNS Worldpanel will post industry
data, which could show that Tesco has snatched back market share from its
rivals. Underlying sales growth at Tesco had fallen behind Morrisons, Asda
and Sainsbury?s this year, but since May the retail giant has fought back
fiercely with a massive £350m investment in its Clubcard loyalty scheme.

In 2008, Asda delivered like-for-like sales, excluding fuel, sales up by 6.2
per cent and grew its market share by 0.2 per cent to 17 per cent, compared
with Tesco?s approximately 31 per cent share over the same period, according
to TNS.

Asda has previously said that its underlying sales momentum has improved
further in 2009, but the grocer?s sales growth in the second-quarter was
pegged back by falling food price inflation and this message could be
repeated on Thursday concerning its Q3. In August, the Wal-Mart-owned grocer
posted underlying sales, excluding fuel, up by 7.2 per cent in the three
months to 30 June, down from 8.4 per cent in the previous quarter.

In the 2008 report, the Wal-Mart-owned grocer said: ?Asda delivered a strong
performance in 2008, with both sales and profits exceeding expectations.
This has been achieved by giving customers great quality products at
outstanding value at a time when they needed it most. 2008 was a very
difficult year for consumers, faced with rising energy prices, reduced
availability of bank credit, and rising unemployment as the economic
downturn took hold.?

This weekend, it emerged that Asda, Tesco and Sainsbury?s have launched a
festive price war on toys, DVD box sets, electricals, clothes and Christmas
decorations with more than a month and a half to go to Christmas day. The
grocers sense a big opportunity to grab sales after the collapse of
Woolworths and Zavvi late last year. Asda has doubled the space it allocates
to toys this year, selling more than 700 lines, including a £35 dolls house.

On Wednesday, Sainsbury?s is expected to post pre-tax profits up by 16 per
cent to £300m for the 28 weeks to 3 October.

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