Sainsbury’s, the UK’s third-largest grocer, today (9 May) reported a 7% increase in annual underlying profits, ahead of City forecasts.

The company booked underlying pre-tax profits of GBP712m (US$1.15bn) for the 12 months to 17 March, a rise of 7.1% on a year earlier.

Underlying operating profit increased 6.9% to GBP789m, which resulted in margins rising by four basis points. Excluding fuel, operating margins were up by ten basis points.

Chief executive Justin King said Sainsbury’s was “succeeding by understanding what our customers want”. He said: “Delivering quality and value is a compelling offer, in tune with what today’s savvy shoppers want.”

The retailer’s reported pre-tax profit fell 3.4% to GBP399m due to a series of one-off items, which also hit its bottom line. Net profit was down 6.6% at GBP598m.

Sainsbury’s had reported its annual sales in March. Total sales, including VAT, increased 6.8% to GBP24.51bn. Like-for-like sales, excluding fuel but including VAT, rose 2.1%.

The retailer expects the market to “remain tough” and forecast like-for-like sales in its new financial year to be “similar” to the previous 12 months.

The company said it would spend less on capital projects this year. It said “core capital expenditure” would be around GBP1bn, compared to GBP1.24bn in its last financial year.

“Whilst the wider economic situation remains uncertain, we remain confident that our clear strategy, market insight and strong values will enable us to make further progress both in our core food and non-food businesses, as well as new channels and services in the year ahead,” King said.

Shares in Sainsbury’s had increased 2.72% to 309.5p at 09:19 BST.

Click here for Sainsbury’s full statement. Click here for the City’s verdict on the retailer’s results and here for why chief executive Justin King the company is ready for competition on quality and service.