Morrisons Posts First Profit Rise In Five Years; To Extend Rontec Forecourt Partnership

Morrisons has posted its first rise in annual profits for five years as its continued to reap the benefits of its turnaround plan.

For the year ended 29 January 2017, group’s reported pre-tax profits jumped 49.8% to £325m, whilst on an underlying basis (after taking out one-off costs) they rose 11.6% to £337m.

Turnover edged up 1.2% to £16.3bn, held back by store closures. However, like-for-like sales for the year climbed 1.7%, boosted by a strong Christmas performance, which lifted sales in its fourth quarter by 2.5%.  Morrisons said customer service improvements, its ‘Price Crunch’ initiative and new product ranges, including its premium ‘Best’ own label line, was attracting customers back to its stores.

David Potts, Chief Executive, commented: “Our full year of like-for-like sales and profit growth was powered by listening to customers, and shows what our hard-working team of food makers and shopkeepers can do.

“But, it’s only one year. Our turnaround has just started, and we have more plans and important work ahead. If we keep improving the customer shopping trip, I am confident that Morrisons will continue to grow.”

Potts warned that there were “some uncertainties ahead”, especially around the impact on imported food prices if sterling stays at lower levels. However, the group pledged to keep a tight rein on price rises at the checkout with the group’s Chairman Andrew Higginson saying any increases would be “absolutely minimal”.

Morrisons is also facing other pressures on costs, including its pension scheme and higher staff pay, although it said it had a plan in place to help mitigate those costs through further savings across the business.  It has identified future cost savings beyond its original £1bn target with plans to roll out a new automated ordering system this year across all product categories which will mean fewer labour hours, better availability, and reduced stock.  The group said it also expects to make cost-savings in distribution between manufacturing and retail, in-store administration, and procurement of goods not for resale.

Meanwhile, the group highlighted the success of its “capital light” partnerships with Amazon, Ocado, Timpson, Rontec, and plans to revive the Safeway brand. After trialling its ‘Morrisons Daily’ c-stores at 10 Rontec-owned petrol stations, the group announced today that it plans to roll-out the format to another 40 sites in the months ahead. However, a five-store pilot with the Motor Fuel Group (MFG) will now be terminated.

Morrisons, which already sells groceries through Amazon, added the internet giant’s parcel lockers are now in more than 400 of its stores. And following a successful trial, a similar roll-out is also planned with parcel firm Doddle.

Commenting on the robust results, John Ibbotson from industry consultancy Retail Vision, said: “Morrisons has been transformed over the past two years from a rudderless ship to a modern-day grocer with a growing sense of direction. It has left Asda in the dust and is looking in a similar state of health to the resurgent Tesco.”

He added that it was encouraging that Potts accepts that the Morrisons turnaround has only just begun, as he saw a long way to go.  “It’s still the smallest of the Big Four, lacks scale and its market share is a fraction of that of Tesco. And the discounters, Aldi and Lidl, remain a genuine threat,” he said.

“There’s also the small matter of food inflation, although the falling Pound may hurt Morrisons less than its rivals, as a high proportion of its food is produced in the UK.

“However, cost cutting and the faster supply chain have raised efficiency significantly, while the ‘capital light’ wholesale deal with Amazon is a low risk way to make greater inroads into the online grocery market.

“Potts has a plan and for now it appears to be working seamlessly.”

NAM Implications:
  • Although net margins have now reached 2%, Morrisons’ turnaround needs to be taken at face value, along with its ‘capital light’ partnerships with Amazon, Ocado, Timpson, and Rontec.
  • i.e. little harm in dove-tailing your trade strategies with Morrisons and capitalising on their journey back, from this new beginning…