J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) has failed to turn sales growth into consistent shareholder returns.
But here are five ways that it could still make you rich.
1. By growing, growing, growing.
Sainsbury’s has now famously delivered 36 consecutive quarters of growth. That looks even more impressive, given the problems afflicting rival supermarket Tesco. It boasted its busiest ever trading week over Christmas. It is powering ahead in increasingly important areas such as convenience stores and online grocery shopping. Its upmarket own brand, Taste the Difference, is a winner. It is even developing its own mobile phone network, with Vodafone. Sainsbury’s has momentum on its side, compared to its sluggish retail rivals. Now it has to maintain its edge.
2. And crushing the competition.
Sainsbury’s has been the best of the big four for some time, knocking rivals Tesco, Asda and WM Morrison off their trolleys, but the sector is facing a big squeeze. Grocery sales are growing at the slowest rate for nine years, according to latest data from Kantar Worldpanel. Trading has been tough since Christmas, with Asda’s sales down 0.7%, Tesco’s down 0.8% and Morrison’s down 4% in just four weeks to 2 February. Sainsbury’s was the only supermarket to post any growth, but it can hardly crow, with sales up just 0.1%. It has to deliver serious outperformance simply to stand still. That will be tough, given the growing threat from Aldi and Lidl at the bottom end, and Waitrose at the top.
3. Accepting that the King is dead.
Former chief executive Justin King’s superb track record will cast a shadow over his successor Mike Coupe. He has timed his exit well, given that the consecutive quarterly growth record is now hanging on a pin. If Sainsbury’s slips, the City will start murmuring about Coupe’s credentials (strong as they are). The departure of a charismatic leader is a testing time. Just ask David Moyes.
4. Boosting shareholder returns.
The supermarket sector has been serving thin gruel to investors. Despite King’s triumphs, Sainsbury’s share price is down 9% over the past three years. That looks relatively good compared to Tesco, which is down 18%, but is seriously disappointing against FTSE 100 growth of 14%. Sainsbury’s has sated investor appetites with a tasty serving of income — it currently yields 4.8% — but investors cannot thrive by income alone. Forecast earnings per share growth looks solid but unspectacular, at around 5% a year for the next three years. This stock faces a struggle if it is to make you seriously rich.
5. Defying the doom-mongers.
The King has gone. Budget usurpers are menacing. Customers are cash-strapped. The supermarket ‘space race’ continues, gobbling up capital and unnerving investors who, like me, believe the future is Local or online. No wonder the valuation is undemanding, at 11.4 times earnings. Market leader Tesco is looking to fight back by cutting its margins, which could drag Sainsbury’s into a costly price war. Sainsbury’s has been a retail success, but an investment disappointment. Trusting in this stock to make you rich will require a leap of faith.
