The Christmas trading statements from Tesco (LSE: TSCO), J Sainsbury (LSE: SBRY) and Wm Morrison Supermarkets (LSE: MRW) all triggered big market moves when they hit the newswires — with Tesco shares closing nearly 15% higher on the day of its statement.
However, while Tesco has delivered the biggest gain so far, we’re only two weeks into 2015.
I’ve been taking a closer look at all three supermarkets to choose my pick for the year ahead.
Tesco
Tesco’s decision to close loss-making stores, scrap plans for 49 new stores, cut capex by £1bn and cancel the final dividend all make good sense. The decision to hire Matt Davies — the highly regarded chief executive of Halfords Group — to run the firm’s UK business also looks smart.
In my view, ‘Drastic Dave’ Lewis, Tesco’s new chief executive, is moving in the right direction, but we’ve yet to see how he will deal with stabilising Tesco’s debt-laden balance sheet and revaluing the firm’s property portfolio.
Sainsbury
Sainsbury’s decision to peg the falling dividend to earnings per share is sensible, but I am concerned by the firm’s recent admission that 25% of its stores are now too large.
I’m also worried that Sainsbury appears to be reacting to changes made by the other two firms, rather than acting out a clear recovery strategy of its own.
This week, for example, Sainsbury announced head office staff cuts and store closures, echoing Tesco’s recent announcement. Why wasn’t this information presented with Sainsbury’s Christmas trading statement, last week?
Morrison
Morrisons’ chief executive Dalton Philips will depart after the firm publishes its full-year results in March. The firm’s Christmas trading update suggests that trading is stabilising, but Morrisons’ 3.1% drop in like-for-like sales was larger than those seen at Tesco and Sainsbury.
I believe Mr Philips’ turnaround plan should bear fruit, but in my view, many of the changes he’s making should have been started earlier than they were. This may be one reason why incoming chairman Andrew Higginson was determined to get rid of Mr Philips.
Which should you buy?
I’m cautious about Sainsbury: I’m concerned that it is too reliant on its more upmarket brand and may prove weaker than it appears.
In my view Tesco and Morrison are more appealing long-term recovery buys. Of the two, Morrisons edges ahead for me, as it looks cheaper, and has more straightforward finances.
