UPDATE 3-Sainsbury's CEO King to stand down in July
* Justin King to step down as CEO at July 9 AGM
* Commercial director Mike Coupe to succeed King
* Shares down 1.7 pct
* Coupe says it's 'business as usual'
* King says has not lined up next job (Adds detail, executive, analyst comments, updates shares)
By James Davey
LONDON, Jan 29 (Reuters) - Justin King will step down as chief executive of British grocer J Sainsbury in July after a decade at the helm, with the company opting for continuity by choosing commercial director Mike Coupe as his successor.
Coupe, 53, had been favourite to succeed the highly regarded King to lead a company battling with Wal-Mart Stores' Asda to be Britain's No. 2 player behind Tesco.
King overhauled the 145-year-old retailer to achieve a 60 percent increase in sales and a near-tripling of earnings.
While no major surprise, his exit raises the question of how his successor will defend profits in the face of stagnating household incomes and a two-pronged challenge from discount grocers Aldi and Lidl and upmarket food retailers Waitrose and Marks & Spencer.
"Coupe represents continuity for Sainsbury's, something that may reassure investors who will naturally be a little disconcerted by change," said Shore Capital analyst Clive Black, who maintained a 'buy' recommendation on Sainsbury shares.
The stock was down 3 percent at 346 pence at 1420 GMT after briefly falling by as much as 5.8 percent. It has gained 8 percent in the past year, while Tesco has dropped 10 percent in the same period as it suffered a run of poor results.
"It's very much business as usual but equally we have to accept that the dynamics of the market are changing and, as we look forward, we may need to change some things," said Coupe.
Sainsbury said King would leave after its annual shareholder meeting on July 9.
Chairman David Tyler praised King as an "inspirational leader" who effected one of the most striking turnarounds in recent British business history.
"In 2004, when he joined, Sainsbury's was close to being on its knees, its shelves were often unstocked, morale was at rock bottom, market share was falling and profits were wholly inadequate," he said.
As well as taking Sainsbury's to a decade-high grocery market share of 17 percent, King built new businesses in clothing and general merchandise, powerful convenience and online operations and took the firm into financial services.
"King's decision isn't a complete bolt from the blue. It has been rumoured a bit in the last couple of years. His successor has big shoes to fill," one top 40 shareholder in Sainsbury's told Reuters on condition of anonymity.
A former executive of Big Food Group, Iceland, Asda and Tesco, Coupe, like King, is a 10-year Sainsbury's veteran. He will receive an annual salary of 900,000 pounds ($1.5 million) as well as a beefed-up long-term incentives package.
During King's tenure, the shares rose over 30 percent, compared with a rise of around 50 percent in Britain's benchmark FTSE 100 index. They peaked in 2007 when there was speculation regarding a possible Qatari takeover.
Sainsbury's has resisted the pressure on the sector better than its big four rivals and earlier this month posted a 36th straight quarter of underlying sales growth.
It reported its "best Christmas ever", but warned that consumers were likely to tighten their belts in the early part of 2014 and cut its sales growth forecast accordingly.
There had been speculation that King could depart for over a year, with media reports linking him with a role in Formula One motor racing.
"Mike's served under Justin for a long time, hasn't got the charisma of Justin ... but I think they see him as a solid choice in a pretty challenging time for the industry," said independent retail analyst Nick Bubb.
"Frankly, supermarket retailing is getting a bit tougher and it's understandable he (King) wants to go out on a high note," said Bubb.
King said the time was right to depart and the decision was entirely his own. He has not lined up another job but felt he was young enough, at 52, to do another big one, though a "non-compete" deal rules him out of taking a role with any rival grocery chain for 12 months.
"There's plenty of energy left in the old dog yet," he said. "I'm sure the right opportunity will come along and I'll know what it is when I see it." ($1 = 0.6030 British pounds) (Additional reporting by Chris Vellacott, Sarah Young and Kate Holton; Editing by Paul Sandle and Tom Pfeiffer)