Morrisons Returns To Profit Growth After Third Consecutive Rise In LFL Sales

Morrisons has today posted robust first half results, providing further evidence that its turnaround plan is working.

During the six months to 31 July, the group’s pre-tax profits rose 13.5% to £143m – its first growth in four years. Excluding restructuring costs, underlying pre-tax profit climbed 11.3% to £157m.

Turnover edged down 0.4% to £8.03bn due to the planned disposal of underperforming stores. Like-for-like sales rose 1.4% (including online of 1.1% and supermarkets of 0.3%) over the period, driven by “strong” volume growth. This figure was boosted by robust second quarter performance when like-for-for-sales rose 2% – its third consecutive quarter of growth. In the second quarter, the number of transactions in its store were up 4.3% compared 3.1% in the previous quarter, suggesting that shoppers are returning to Morrisons having defected to the discounters in recent years.

Morrisons said it had made good progress with its plan to ‘Fix, Rebuild and Grow’ the business, whilst agreeing new strategic partnerships with Amazon, Timpson and Ocado. The group highlighted that its ‘Price Crunch’ campaign was driving down prices, whilst category resets and new product ranges were proving popular. Improvements in customer service and store facilities were also said to have helped tempt shoppers back to its stores.

Morrisons ‘Fresh Look’ store refurbishment programme continued with 51 refits so far this year, of which 28 were in the first half. The group said that revamped stores were generating sales uplifts and that it was on track for 100 Fresh Look refits this year and 100 per annum until the end of 2018/19.

Morrisons said that its wholesale arrangement with Amazon, which launched in June, was progressing well with it broadening the range it supplies to the online giant. It added that it was also developing further potential opportunities for wholesale supply with other customers.

Meanwhile, the group said that it now expects to exceed its £1bn three-year cost savings target by the end of this financial year and that it had also identified further productivity opportunities for the future in areas such as product ordering, distribution and in-store administration.

Chief Executive David Potts commented: “We are pleased with positive like-for-like sales and 11% underlying profit growth in the first half. Our priorities are unchanged. We have made improvements to the shopping trip for customers and we plan to do more.”

Andrew Higginson, Chairman, added: “The new team has made a real difference and delivered further good progress across the board in the first half. We remain on track to deliver improved profits and returns for shareholders”

Commenting on the result of the EU referendum, Morrisons said: “It is too early to know how the recent referendum result could affect the British economy, but customers tell us their food shopping has not changed. We have seen no negative impact on customer sentiment or customer behaviour.”

NAM Implications:
  • Where at: As Ken Morrison might say, ‘Morrisons are now at the end of the beginning’ and on the way back…At 1.9% net margin, some way to go in order to regain the support of the City in terms of consistent ROCE performance.
  • Where headed: Given their commitment to the Christmas Price War, vs deep-pockets Asda, Morrisons’ come-back performance could be challenged in Q4.
  • Impact on you: Pressure on Morrisons’ costs, and supply-chain re smaller, faster, more frequent zero-defect deliveries to ensure 100% on-shelf availability.
  • Action: Rebalance the strategic mix of customers in terms of mults vs. others, and Morisons role within mults re Invest, Maintain, Divest classification, and decide now re the degree and type of your support in Q4…