Sainsbury's to increase capex to drive profit leverage

Sainsbury's announced its ‘Next Level Sainsbury's’ strategy on Wednesday, aiming to drive profit leverage from sales growth.

The FTSE 100 grocery giant said it anticipated a surge in retail operating profit growth from the onset of the plan.

To support that, it said it was planning to escalate capital expenditure to between £800m and £850m annually over the next three years.

Additionally, an extra £70m investment was earmarked for the 2025 financial year to bolster its Smart Charge Electric Vehicle (EV) charging network.

The board said the increased capital expenditure would be strategically allocated towards high-return efficiency and growth investments, aimed at optimising operational performance and fostering sustainable growth.

Despite the rise in investment, Sainsbury's was confident in its ability to maintain robust retail free cash flow, projecting at least £500m per year and a cumulative of over £1.6bn over the next three years.

It anticipated an increase in cash flow over the period as profits grew, albeit partly offsetting the role of working capital benefits in earlier years.

The company said it expected one-off cash costs associated with cost-saving programs of £150m throughout the three-year period.

Sainsbury's also pledged to enhance returns for shareholders through a progressive dividend policy starting from the next financial year.

Additionally, the company said it would initiate a share buyback programme, with £200m of share capital set to be repurchased during the next financial year, leveraging its robust balance sheet and cash generation capabilities.

“Our Food First strategy has delivered on its promise over the last three years, making Sainsbury's a stronger business with a much sharper position on value and a major refocus on our innovation,” said chief executive officer Simon Roberts.

“Customers have recognised the progress we've made, as our market share gains have shown.

““Our Next Level Sainsbury's strategy is about giving customers more of what they come to Sainsbury's for - outstanding value, unbeatable quality food and great service.”

At 0840 GMT, shares in J Sainsbury were down 3.77% at 265.2p.

Reporting by Josh White for Sharecast.com.