Sainsbury’s has made public the findings of new boss Mike Coupe’s strategic review and the City is digesting the implications.

Sainsbury’s underlying retail trading profit… was better than our expectations and close to consensus and one of the best outcomes amongst the grocery majors.

“We believe the key to the value simplicity strategy is growing like-for-like customer numbers and retaining loyal larger basket shoppers. The cut in the dividend is a significant shift away from its previous strategy and, in our view, reflects the threat that Tesco will reset pricing and costs to a lower level to recover some of its lost market share.   

“Investors will need further reassurance on full-year profits and the UK trading strategy to grow the customer base while completing the value simplicity strategy.

“The risk now is that we see further pressure on sales from more grocery price deflation before the improvement in consumer real earnings starts to feed through.” Mike Dennis, Cantor Fitzgerald

 

“Despite the greater visibility on Sainsbury’s strategic plans, we continue to believe that much of Sainsbury short/medium-term earnings prospects will remain dependent upon the magnitude of the much anticipated Tesco price/margin reset.

“Whilst we applaud Sainsbury’s greater capital discipline, the focus on debt reduction and strengthening the group’s balance sheet, we struggle to forecast future years with confidence.” Darren Shirley, Shore Capital

 

“They are not solely focusing on price, they are also discussing quality – improving the quality of 3,000 own-brand products; furthering their quality differentiation, while others are focusing only on price.

“This represents the opportunity for Sainsbury’s, while Tesco and Morrisons try and aggressively compete with Asda and the discounters, Sainsbury’s can further differentiate  as a quality retailer.” Bruno Monteyne, Bernstein

 

“Overall cuts to numbers are less severe than we feared might have happened – as judged by Sainsbury’s low PE multiple and high short interest. The pushback will be that the dividend policy gives no clarity on the absolute level of dividends in the years ahead and that the £150m of price investment may not be enough – especially considering we do not know the quantum of any price investment Tesco may make.

“While we accept both points are fair questions, we would argue that it is clearly sensible for the company to retain a high level of flexibility on dividend payouts – and that the new chief executive will likely have been careful to invest sufficiently to avoid having to increase this again in the very near future.” James Anstead, Barclays

“Sainsbury still is not going as far as competitors Tesco and Morrison regarding cutting large-store space: we think 350k [in the eyar to March 2017] new guidance (down from 750k this year) still includes c100k large-stores (and 250k convenience, as now).

“This is not quite as ‘good’ (for the industry as a whole) as we modelled, but it is fair to say that Tesco’s reduction is a rather bigger swing factor and already reflects a major tailwind (at least, relative to recent trends) in the coming quarters.

“Sainsbury will also now start to look at ‘re-use’ potential, including concessioning, in its now “underutilised” larger stores, but emphasised its lesser exposure to this kind of store versus Tesco.

“Non-food remains a growth opportunity for Sainsbury to broaden the franchise and to utilise space in larger stores. (Sainsbury appears to have increasing brand equity in clothing and softlines; actual penetration of non-grocery, now up to c16% on a Kantar basis versus c15% at Tesco, whose proportion is in decline).” David Payne, Nomura