As expected, Morrisons has reported robust first-quarter sales growth following the surge in demand for groceries at the start of the coronavirus outbreak. However, the group highlighted that trading had been “highly volatile” and it was facing a hit from higher operating costs and lower fuel sales.
Over the 14-week period to 10 May, the group’s like-for-like sales (excl. fuel) rose 5.7% – with retail growing 5.1% and wholesale up 0.6%. However, including sales at its 337 forecourts, total like-for-likes were down 3.9% after fuel sales plummeted 39.3% as people took fewer car journeys during the lockdown.
Morrisons revealed that it saw considerable stocking up and sales pull-forward during weeks five to seven of the quarter. However, like-for-like performance was negative for weeks eight to 11 after the introduction of social distancing measures in its stores and weak sales over the normally bumper Easter period.
However, in weeks 12 to 14 retail like-for-likes were up 9.6% after the chain returned to normal trading hours, customers became more accustomed to the social distancing protocols, and the eat-at-home market grew. Morrisons also noted that people are spreading their shopping trips throughout the week rather than focusing on the traditional weekend peak.
Looking ahead, the group said: “At this stage, the impact of Covid-19 remains uncertain. We continue to monitor various 2020/21 sales, profit and cash flow scenarios, but have minimal certainty or visibility around a precise outcome.”
Last month, Tesco estimated a hit of up to £925m from the costs of dealing with the pandemic, while Sainsbury’s warned the impact on its current year profit could be over £500m.
Morrisons is predicting that expenses relating to the pandemic such as higher distribution and staff costs, along with store safety measures, will be broadly offset by the government’s business rates relief, of which it estimates will be £228m for this year.
However, the company stressed that the actual net effect is dependent on the length of the crisis and how customers respond as the lockdown eases. In addition, it is facing impacts on profit from the closure of its significant café business, and the considerably lower fuel sales.
Morrisons has already deferred its special dividend payout for its last financial year due to “the unprecedented nature of events”. The company has also kept its capital allocation options under review, giving it flexibility over how it uses its cash flow.
Chief Executive David Potts said: “We are facing into the unprecedented current challenges and are playing our full part to help feed the nation: working with determination, creativity and pace to serve customers as well as we possibly can.
“The professionalism, enthusiasm and resourcefulness of our frontline key worker colleagues is extraordinary and is showing Morrisons at its very best.”
Despite the cost concerns, Morrisons share price rose nearly 4% following the results statement.
Thomas Brereton, retail analyst at GlobalData, commented: “As COVID-19 continues to upend the food industry, Morrisons has adapted to new shopping trends in the UK in line with competitors, quickly implementing now common supermarket processes (such as limiting store occupancy and raising contactless payment limit). Morrisons stands out for its more empathetic initiatives, such as offering a minimum 6% annual bonus for all employees and in-store discounts for farmer suppliers and NHS workers – enterprises that will serve it well in the long-term as supermarkets continue to play a pivotal role in the UK’s response to the crisis.
“Morrisons is well-placed to ride out the worst of the coronavirus outbreak long-term. Given the ongoing economic impact on non-UK countries, global food prices are forecast to rise considerably in 2021; however, Morrisons’ integrated UK supply chain will help shield it from any unexpected foreign inflation. Furthermore, it’s extended partnerships with Deliveroo (rapid delivery from 130 stores) and Amazon (increasing national coverage of its store on Prime Now to 90% of postcodes) increases its stability as grocery home delivery continues to blossom (forecast to grow 25.5% in 2020).”
NAM Implications:
- Morrisons is making all the logical moves re cash management.
- (dividend deferral, capital projects under review, but no mention of payment terms?)
- Meanwhile, pre-lockdown pressures remain (Amazon & discounters)
- Key for NAMs is how Morrisons share within the mults sector will be affected…
- i.e. relative dependence on hospitality, non-food and fuel…
