Sainsbury's chief executive Justin King said: 'This strong performance is ahead of our expectations. It's also our best for many years. We believe that now is the right time to look to the next stage of our recovery and to expand the business to drive growth for the longer term.'
Like-for-like sales (excluding fuel) rose 5.9 per cent, marking the ninth consecutive quarter of like-for-like growth. The retailer's pension fund deficit was also reduced to£55 million, from£431 million.
Sainsbury's chairman Philip Hampton said: 'Over the past year, we have delivered another strong performance. Since March 2005, we have increased sales by£1.8 billion, with over£1 billion delivered in the 2006/07 financial year. This means that we are ahead of our target to increase sales by£2.5 billion by March 2008.'
The company said that it has a target of 10 per cent growth in new space over the next three years, split equally between grocery and non-food. Its online home delivery service is also to be expanded to 200 stores, from 114. The retailer plans to fund its expansion with£2.5 billion of capital investment from cash flows.
King said that the priority remains food, but the retailer intends to ramp up the development of its non-food offer to 'give customers a broader shopping experience'.
Seymour Pierce analyst Andrew Wade said: 'This was a strong performance, achieved despite the takeover speculation, driven by sales growth and supported by food price inflation of 1 per cent. Things look good heading into the new year, with food price inflation, cost savings, sales momentum and new space coming online.'