As predicted, Morrisons run of 14 consecutive quarters of underlying sales growth has come to an end after being impacted by tough comparisons with last year and weak consumer confidence.
In half year results to 4 August, the group revealed that overall like-for-like sales were down 1.9% in its second quarter, with its core retail operation seeing a 2.4% fall while wholesale delivered a 0.5% rise. This compares with 2.3% increase in the first quarter and a 6.3% rise in the same period last year when trading was boosted by a prolonged spell of hot weather and the football World Cup.
However, Morrisons stressed that it had maintained momentum in its turnaround plan with pre-tax profits rising 5.3% to £198m on total revenue up 0.4% to £8.83bn. It also expects retail like-for-like sales to improve in the second half of the year amid continued work to improve its competitiveness.
The group also announced today that it was extending its partnership with Amazon by signing a multi-year agreement rather than the current rolling contract. It added that they will be “exploring new opportunities to innovate and improve the shopping experience for both Morrisons and Amazon customers”. The two firms are currently rolling out their same day grocery delivery service to more cities across the UK.
Meanwhile, Morrisons revealed several deals that will further expand its wholesale supply operation which is on track to hit its annualised sales target of £1bn.
The group has agreed a new wholesale partnership with Harvest Energy, which operates 80 convenience stores on its petrol station forecourts, mostly in the Midlands and the South East. This includes the conversion of a number of these to Morrisons Daily stores in the coming months.
Morrisons has also agreed an export deal that will see it supply own branded products, including its ‘Best’ and ‘Free From’ ranges, to LuLu, the second largest grocer in the Middle East.
Its wholesale partnership with forecourt operator Rontec is also being extended through further store format trials beyond the current 50 Morrisons Daily outlets. A 10-store trial converting McColl’s outlets to the Morrisons Daily format was said to have delivered “encouraging results”.
Chairman Andrew Higginson said: “I’m confident that Morrisons is on the right path for continued and sustainable growth,” whilst Chief Executive David Potts added: “We stayed focused on our Fix, Rebuild and Grow strategy, and were pleased to maintain the momentum of the turnaround against strong comparatives last year.”
Analyst Clive Black at Shore Capital suggested Morrisons will not be alone amongst British supermarkets in recording negative like-for-like sales through the summer.
“Morrisons could not sustain an excellent period of unbroken like-for-like retail sales growth, facing into a multiyear comparative headwind in the second quarter,” he said. “However, a resilient performance was delivered through the first half.”
Meanwhile, Potts said today that talk about Morrisons being takeover target was “pure speculation”. Reports last month suggested Morrisons could be vulnerable to a takeover bid from international buyers who might be encouraged by the drop in the value of Sterling and the slide in the chain’s share price.
NAM Implications:
- Key is how your Morrisons sales compared…
- Best conduct a what-if re this downward trend continuing for the next two quarters…
- …and reassessing your Morrisons strategies as appropriate.
