By James Davey
LONDON (Reuters) – With Sainsbury’s dream of creating Britain’s biggest supermarket group in tatters, its chastened CEO Mike Coupe needs to reassure investors he has the plan to arrest a sales decline when he presents annual results next week.
Britain’s competition regulator blocked Sainsbury’s £7.3 billion takeover of Walmart’s Asda on Thursday, saying the deal would increase prices. Sainsbury’s shares fell 5 percent and are down 22 percent over the last three months.
For Sainsbury’s fourth quarter to March 9 analysts are on average forecasting a 1.6 percent fall in like-for-like sales, which would follow 1.1 percent decline over the Christmas period.
Monthly industry data from researcher Kantar has also shown Sainsbury’s as the weakest performer of the big four grocers this year and this month it lost its status as Britain’s No. 2 supermarket group by market share to Asda.
While Sainsbury’s has struggled, market leader Tesco has gained momentum, this month reporting a 34 percent jump in full year profit.
Prohibition of the deal was a major blow to Coupe, its architect and Sainsbury’s boss since 2014.
Martin Scicluna became Sainsbury’s chairman last month and when bedded-in may decide that if the group needs a major shake-up it is best carried out by a new leader.
Much will depend on the attitude of 22 percent shareholder the Qatar Investment Authority, which has so far declined to comment, as well as Coupe’s own appetite to continue after 15 years at the group.
Coupe said on Thursday he was confident Sainsbury’s was pursuing the right strategy.
That was a clear indication that Wednesday’s results statement will not include radical changes to the group’s plans, such as a big margin reset — sacrificing profit to drive sales.
However, sources connected to Sainsbury’s said Coupe would likely acknowledge that more needs to be done on prices, so the supermarket business can better compete with its big four rivals – Tesco, Asda and No. 4 Morrisons – as well as German-owned discounters Aldi and Lidl.
Coupe’s strategy is based on differentiating Sainsbury’s food offer, growing its general merchandise, clothing business and bank, while investing in convenience and online channels.
Some analysts believe major change is needed.
HSBC analyst David McCarthy reckons Sainsbury’s needs a margin reset, should allocate more space for core lines and needs to drive better store standards. He said Sainsbury’s might consider closing down space in some of its larger stores and reducing its non-food offer.
For the full 2018-19 year analysts are on average forecasting a pretax profit of £626 million, up from £589 million in 2017-18 – a second straight year of profit growth. A full year dividend of 10.5 pence per share is forecast versus 10.2 pence last time.
Bank and lawyer fees related to the proposed combination with Asda were £17 million in the first half and have reportedly jumped to around £50 million.
(Reporting by James Davey; Editing by Keith Weir)