J Sainsbury, Britain's third-biggest grocer, plans to raise 445 million pounds ($732 million) to accelerate its expansion, it said on Wednesday, as it posted first-quarter sales at the top end of expectations.
The 140-year-old firm, which runs over 500 supermarkets and almost 300 convenience stores, said it would raise 255 million pounds in a placing of new shares and 190 million pounds in an offering of convertible bonds due 2014.
It will use the money to grow selling space by 15 percent, or 2.5 million square feet, by March 2011, up from its previous target of 10 percent.
Like-for-like sales excluding fuel and VAT sales tax rose 7.8 percent in the 12 weeks to June 13, at the top end of analysts' forecast range in a Reuters poll of six.
The expansion drive will increase sales growth in 2010/11, but will slightly pressure earnings in the current financial year and 2010/11 due to extra interest and pre-opening costs.
Traders said Sainsbury's shares were set to open down around 3 percent. They closed at 331.75 pence on Tuesday.
"Slightly disappointing that it's dilutive to earnings in the short term, but this should strengthen Sainsbury's position in the medium term," said Shore Capital analyst Darren Shirley.
"They're essentially doing what Tesco did ten years ago," he said, noting Sainsbury's plans to sell more non-food products.
Sainsbury has defied expectations it would suffer from its mid-market position in the recession by taking custom from upmarket rivals like Marks & Spencer and holding onto more budget-focused shoppers with promotions like "feed your family for a fiver" and "love your leftovers."
Sainsbury's first-quarter growth is well ahead of the 4.3 percent reported on Tuesday by bigger rival Tesco for the 13 weeks to May 30, and close to the 8.2 percent increase posted by smaller competitor Wm Morrison for the 13 weeks to May 3.
Sainsbury also said it had agreed to buy a further nine stores from smaller rival the Co-Operative Group for 29 million pounds, in addition to 24 stores already acquired.
"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," Chief Executive Justin King said, adding the firm would take advantage of property price falls to buy new stores, as well as extend existing ones.
Sainsbury's shares have performed broadly in line with the DJ Stoxx European retail index this year and trade at about 14.2 times forecast earnings, above Morrison on 13.5 times and Tesco on 12 times, according to Reuters data.
Morgan Stanley and UBS are joint bookrunners for the placing.
