Interim results from Morrisons confirm it has seen bumper sales in recent months due to increased at-home consumption during the pandemic. However, the retailer suffered a significant fall in profits as a result of costs relating to the crisis.
Over the six months to 2 August, the group’s like-for-like sales (excl. fuel) rose by 8.7%, having accelerated to 12.3% (Retail +11.1%, Wholesale +1.2%) in the second-quarter period.
Morrisons highlighted that growth in all its online and home delivery channels, that includes its own website, Amazon, food boxes, and Deliveroo, was “very substantial”.
However, total group revenue for the half fell by 1.1% to £8.73bn due to low demand for fuel at its forecourts during and after lockdown. Excluding fuel sales, total revenues rose by 8.8% to £7.55bn.
Pre-tax profit before exceptionals slid 25.3% to £148m after direct costs of responding to the pandemic totalled £155m. This included £82m for hiring extra staff and paying additional bonuses, and £25m for safety measures. The impact was partly offset by £93m in business rates relief with the group expecting the extra costs to taper off during the second half of the year.
However, Morrisons held back from issuing a formal profit forecast for the year and the special dividends that investors have received in recent times remain suspended. But there was still a regular interim dividend, which was up 5.7% to 2.04p a share.
The group highlighted that the strong first-half sales were weighted towards online channels and lower margin categories, with the closure of cafés and investment in supporting its staff, NHS workers and farmers also eroding profits.
“While some of these margin impacts may persist into the second half, we are confident that we have a plan for continued LFL growth and that our ongoing programme of significant price cuts and investment in service for customers will drive continued operational gearing,” the group said.
Morrisons stated that there had been some moderation in sales growth towards the end of the last quarter as the eat-out market began to open up.
Chief Executive David Potts said of its recent performance: “From the start of the pandemic we stepped up and put the company’s assets at the disposal of the country to help feed the nation. Morrisons is at the heart of local communities and responded quickly when it mattered most, and we are very grateful for the British public’s appreciation of all the vital work our colleagues are doing.
“I believe we are seeing the renaissance of British supermarkets.”
He added that the group was now focused on holding on to what it had created in the first half and “sustaining the momentum of a broader, stronger Morrisons.”
Meanwhile, Potts used the results to warn that supermarket prices will go up unless the UK government negotiates a tariff-free Brexit deal with Europe. “From our point of view representing British consumers we would like the government and the leaders of the country to negotiate a deal that includes no tariffs UK to Europe or Europe to the UK because tariffs do drive inflation,” he said, adding that avoiding such a situation was particularly important in a “recession year”.
Commenting on the results, Sophie Lund-Yates, an analyst at Hargreaves Lansdown, said that while Morrisons’ profit statement “made for pretty ugly reading”, she added there was “more than just a light at the end of the tunnel”.
Lund-Yates highlighted that while the supermarket had a smaller online delivery business than its rivals, it had grown strongly “and starting from a lower base means there’s more room to grow”. She also cited its expanding relationship with Amazon, through which customers can now do a full Morrisons food shop.
