Morrisons saw its sales fall over the Christmas period with the supermarket group blaming “unusually challenging” trading conditions and “sustained” customer uncertainty.
In the 22 weeks to 5 January, overall like-for-like sales were down 1.7% with its core retail unit responsible for the fall as wholesale sales were unchanged. However, the outcome was better than feared as analysts had been forecasting a decline of around 2.5%.
Unlike previous years, Morrisons did not provide a figure for the festive period in isolation. Sales in the nine weeks around Christmas last year rose 3.6%. However, it did reveal third-quarter figures (5 August to 3 November) which showed like-for-like sales had fallen 1.2%, with retail down 1.1% and wholesale slipping 0.1%.
Amid the political and economic uncertainty caused by the general election and Brexit, the group highlighted that trading conditions had remained challenging throughout the period. Morrisons stated that it had focused on pricing, whilst also managing costs. It said most prices for items in a Christmas basket were the same or lower than in the previous year.
Four new stores were opened in the period and the same number of underperforming stores were closed. Another 25 stores were refurbished in the ‘Fresh Look’ format, taking the total to 44 in the current year. The new stores include Canning Town, which is the group’s first store with a Market Kitchen food-to-go offer, and Bolsover, it first smaller, community store format that stocks a larger than normal selection of local products.
Commenting on its wholesale division, the group stated that it had grown sales with most of its customers, but overall like-for-like growth was impacted by lower total sales at the McColl’s convenience chain. However, it highlighted that sales at the first ten conversions from McColl’s to the Morrisons Daily format were strong, and it plans to extend the trial to another 20 stores over the next couple of months.
David Potts, Morrisons Chief Executive, said: “It was encouraging that during an unusually challenging period for sales, our execution was strong and our profitability robust, demonstrating the broad-based progress we have made during the turnaround … As always, we will take some learnings into the new year, and look forward to 2020 with a strong plan and solid foundations on which to continue to grow.”
Despite the sales fall, Morrisons stated that it still expected to report profit for the full year within the current range of analysts’ forecasts. It said it had managed costs well throughout the period, which helped offset some of the impact on underlying sales from the tough trading conditions.
Looking ahead, Potts said there was a sense of greater optimism since the general election but that it had not yet shown up in the numbers. He added that a full resolution of the Brexit issue would be needed in order for customer confidence to return in earnest.
Commenting on the trading update, Richard Lim, CEO of Retail Economics, said: “Festive cheer was not shared with the retailer as shrinking sales demonstrate the fiercely competitive food sector.
“These figures suggest the retailer was outmanoeuvred by their competitors. Shoppers remained fixated on searching for the best value and highly price-sensitive against the backdrop of ongoing uncertainty.
“Despite the pressure on margins, the industry remained stuck in a spiral of continual discounting with the depth and breadth of promotions snowballing in the run-up to Christmas. Nevertheless, a firm grip on costs offset some of the decline in sales to deliver profitability in line with previous expectations.”
Sainsbury’s and Tesco are due to post their Christmas trading updates over the next couple of days with both expected to reveal subdued results.
Aldi yesterday reported a 7.9% increase in total UK sales over the four weeks to 24 December. However, it does not provide like-for-like figures with much of its growth likely to have come from new store openings.
NAM Implications:
- The problem with a degree of transparency that does not meet analysts’ expectations is they will discount to reflect perceived risk i.e. the more you reveal, however bad, means they will rate more precisely and probably closer to real market value.
- Key is how your Morrisons sales compared…
- …hopefully achieving a fair share of sales and profit.
- Time to ensure that Morrisons wholesale is realistically factored into your trade strategies.
- Deep down, the 2020 issue is how the mults performance will be impacted by the discounters and Amazon…
