News Column

Sainsbury's: Can Coupe succeed in maintaining King's legacy? asks Nils Pratley

July 10, 2014

Nils Pratley

Sainsbury's shares have fallen 12% between Justin King's announcement of his departure in January and his actual exit yesterday, thereby removing a little shine from his performance statistics. Instead of a total shareholder return of 100% in 10-and-a-bit years, the final figure is roughly 85%.

The share price has advanced only from 261p to 309p over the past decade (the spike in the middle is the takeover bid that didn't happen), so most of the returns have come from dividends. There is no shame in that, of course, especially as the point to remember is that King inherited a shambles.

Back in 2004, Sainsbury's was in the middle of multiple profit warnings, the distribution system was in chaos thanks to predecessor Sir Peter Davis's botched overhaul and Tesco was in its pomp. If the 2009 recession had happened in 2004, Sainsbury's might not have survived it, King later told this newspaper. It was a reasonable assessment: Sainsbury's really was that shoddy.

Current Sainsbury's shareholders may have to get used to life as owners of a mere income stock. The "main event," as King put it yesterday, may be groceries sold through traditional supermarkets but the march of the discounters has changed the game. Price competition is fiercer, profit margins are under pressure and the outlook is blurred.

Sainsbury's joint venture with Danish discounter Netto will offer only limited relief; if it goes badly, it could be a distraction. Banking, thanks to consumers' trust in Sainsbury's, could offer easier pickings but it's an add-on.

So success for Mike Coupe, the new boss, may be defined as Sainsbury's ability to keep its dividend stable. Short term, the task ought to be straightforward. Sainsbury's like-for-like sales have fallen for two quarters, but the chain still outperforms Morrisons and Tesco.

Yet the dividend yield is 5.5%. If you're a believer, that's a juicy opportunity. The alternative view is that Coupe will have to run very hard to stand still.

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Source: Guardian (UK)

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