The UK’s fifth largest supermarket chain Somerfield reported a turnaround in its fortunes yesterday [Tuesday], posting net profit of £5.5m (US$7.89m) for the six months ended 10 November, up from the net loss of £21.7m in the same period a year earlier.

Earnings per share similarly rose from a loss to 4.5 pence last year to a gain of 1.1p, and operating profits of £5.6m were recorded, compared with losses of £9.5m last year. The group said that furthermore its balance sheet is strong and has negligible gearing at 2.3%, after the group “more than doubled capital expenditure at £58.3m compared with £27m in the last half year.

The main factor in the group’s success is Kwik Save, the long-suffering discount grocer. Like-for-like sales at stores with the Kwik Save fascia were up 3.5% after many years of decline. This was attributed to a series of store refits, a “much needed makeover programme”, prompted by a bid to shake off the chain’s old-fashioned image. There were also a series of promotional offers over the crucial festive season and consumers have apparently given a positive reception to the trial of a new bespoke non-food range in 25 stores.

At Somerfield stores, meanwhile, like for like sales were up 2.5% and the group acknowledged, “sales trends have proven to be highly dependent on the level of promotional activity”. So “towards the end of the second quarter,” it explained: “Steps taken to rebalance promotional activity and to achieve better margins have resulted in improving sales trends.”

Delivery of improved customer service remains a cornerstone of the Somerfield strategy, it added.

Christmas trading was described by the group as “satisfactory”, with low wastage on the seasonal products and the four weeks brings sales increases of 2.9% and 3.8% in the Somerfield and Kwik Save stores respectively.
Going into the remainder of the financial year, the group’s full year expectations remain unchanged, as it claims to have improved sales figures without compromising gross margins.

Executive group chairman, John von Spreckelsen, promised that “the remainder of the year will see further investment in stores in both the Somerfield and Kwik Save fascias, which will support sales and the group’s profitability”. Particularly, a further 70 store makeovers are planned and plans are in place to complete seven new concept major refits. 

Importantly, while the group’s five-year recovery programme is on track, Spreckelsen cautioned that, “a full recovery to more respectable levels of profitability will take time”.

“It’s not a quick fix and we don’t want people to get too enthusiastic at an instant improvement.”