The retailer revealed like-for-like sales down by 5.6% over the period. Total sales were down by 1.9% excluding fuel and by 3.3% when fuel was included fuel.
Shore Capital analysts Clive Black and Darren Shirley said: “Morrisons has surprised us with an especially disappointing trading update today [January 9].”
While the big four supermarkets all experienced weaker than expected festive trading, Morrisons’ suffered through its lack on an online proposition and under-representation in convenience, they said.
‘Dangerous to our minds’
But more deep-seated problems were putting a brake on its performance, they continued. “Morrisons is under-performing because of fundamental issues with its brand, stores and offer and not these other matters. To think otherwise is dangerous to our minds.”
Both argued Morrisons’ fresh formats strategy had alienated core customers without attracting new ones. “The retailer has not recovered at a time when many customers have been tempted away to hard discounters and premium players in particular.”
Taking into account inflation, the volume position was “truly worrying, with negative operational gearing compounded by vertical integration, so eating heavily into margin”. If the results were adjusted by say 0.9% – to account for two extra days trading on Boxing Day and New Year’s Day – and inflation of about 2.5%, same store volumes could be down by as much 9%. “Such volume contraction does little for trading negotiations with proprietary brand manufacturers nor working capital,” they noted.
Assuming continued weak momentum into the first half and quarter of 2014/15 and negative operational gearing, Shore Captal cut its profit forecast by 14% from about £800M to £688M. But it offered hold advice on the retailer’s stock.
‘Very disappointing’
Panmure Gordon analyst Graham Jones agreed that the results were “very disappointing” but repeated a ‘sell’ advice on the retailer’s shares. “Morrisons wasn’t due to report until January 20 but clearly felt that trading was too bad not to share,” said Jones.
Dalton Philips, Morrisons’ ceo, agreed the results were disappointing.
“However, we are firmly focused on driving our core business and accelerating our penetration of the fast growing channels,” said Philips.
“Our convenience business is building towards an operation of scale and the first food deliveries of Morrisons.com will be made tomorrow, reaching half of UK households by the end of the year.”
The sales environment continues to be very challenging, but the board expected full year underlying profit performance would be towards the bottom of the range (£783M– £853M) of current market expectations, he added.
Meanwhile, Tesco and Marks & Spencer also delivered unhappy Christmas trading results this week.