Sainsbury's management continue to do a great job restoring the chain's fortunes and could well deliver impressive profits in 2009

That J Sainsbury put out a very solid set of interims last week will most probably be lost in the noise surrounding the non-completion of the takeover deal, but in our view a very compelling medium-term growth story is building here.

Sainsbury's has made great strides in resurrecting its brand and with new space coming on stream and freeholds being bought in, we think that management is confident it can deliver at the very least the latest targets set by City analysts. There's a crucial period in JS's evolution coming up, and this month I'd like to discuss what lies next for standalone JS.

The management in fact has done an excellent job in taking what has always been a good brand, and re-establishing its core properties.

The 1990s and the first part of this decade were an unmitigated disaster for the Sainsbury brand. Management with hindsight is always very easy, but in the 1990s J Sainsbury plc became a global retail conglomerate (Savacentre, Shaws, Homebase were part of the stable), and running the UK business for cash (too much focus on the bottom line rather than market share) allowed the likes of Asda and Tesco to recover their poise after the JS-dominated 1980s.

Various managements since then have tried and failed to rebuild JS's credibility and profitability, largely because they focused (again) too much on margin rather than sales density.

The Justin King team have (so far) got it right, and the moment we heard mention that the attempted recovery would be sales-led, we were hopeful. Under the current regime, availability, pricing, store standards and marketing have all been improved.

It remains the case that perception is lagging behind reality, though. In terms of product innovation, JS has made good progress of late, and the non-food range that many of the stores now carry is more authoritative than many shoppers believe.

We think the runes are good for JS. While life in the sector is never dull or easy, we think this is a business that can happily take more than its fair share of sector growth going forward, with a sensible margin structure in place. Yes, operating margins may never challenge Tesco's, but so what? Putting enough sales through on this model could easily bring a profits outcome in 2009 that is well ahead of City estimates.

Sainsbury's and its shoppers can look forward to a happy ­future.n

Jonathan Pritchard,

Partner, Oriel Securities

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