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J Sainsbury said it would buy back £200mn of shares and cut a further £1bn in costs as part of an updated strategy designed to attract more shoppers to the supermarket’s stores and boost shareholder returns.
The UK’s second largest grocer, which has a share of 15.7 per cent of the UK food market, said it would offer more choice and consistent value for shoppers, a refined loyalty scheme and “a right-sized organisation” as part of four key areas of focus.
Its shares fell by almost 4 per cent in early trading on Wednesday after the announcement.
The update follows a previous strategy overhaul in 2020, focused on putting food at the heart of the business in an effort to stop shoppers from defecting to cheaper German rivals Aldi and Lidl.
Chief executive Simon Roberts said on Wednesday: “While I’m proud of the progress we’ve made to date, we’re only just at the beginning of rediscovering quite what this business is capable of.”
Sainsbury’s said it would generate £1bn in cost savings over the next three years, increase capital expenditure to between £800mn and £850mn a year, and generate free cash flow of at least £1.6bn by 2027. The company said it expected £150mn in one-off cash costs as a result of the plan.
It also pledged to commit to a “progressive dividend policy from the start of next financial year” and a £200mn share buyback.
William Woods, a retail analyst at AllianceBernstein, said Sainsbury’s had so far been successful in “turning around market share and bringing the focus back to food” but called some of its commitments on Wednesday “a bit fluffy”.
He said the grocer’s free cash flow guidance was the same, at about £500mn a year, while Sainsbury’s did not break down details of the 10-15 per cent increase in capital expenditure.
“Without further details . . . [this] will weigh on the stock,” he said. “We also note that the £1bn cost savings no longer has a target of reduced operational expenditure as a percentage of sales, which we don’t like.”
The company said it plans to create more space for food in many stores by reallocating some space currently occupied by general merchandise and clothing although it would “tighten the focus” on these two areas. Its clothing arm Tu and Argos business have dragged down the retailer’s recent performance.