Morrisons posts ‘dismal’ third quarter results
The troubled retailer reported total sales down by 3.6% (or by 5.6% including fuel) for the 13 weeks to November 2. Like-for-like (LFL) sales fell by 6.3% during the period and by 8% when fuel was included.
Retail analyst Planet Retail said the results showed Morrisons was failing to win the battle with discount stores. “This morning’s dismal set of numbers show Morrisons is still struggling to come up with a solution to the seemingly unstoppable rise of the hard discounters,” said retail analyst David Gray.
While Morrisons’ boss Dalton Philips was “brimming with ideas” on how to remedy the retailer’s flagging fortunes, he had yet to deliver a significant improvement in performance. “If the price-matching loyalty scheme doesn’t deliver the necessary result, Philips’ days may yet be numbered,” warned Gray.
‘Philips’ days may yet be numbered’
But the store’s new loyalty scheme – Match & More – was the first combined price matching and loyalty scheme comparing prices with Aldi and Lidl. “Although early days, this will undoubtedly help stem the tide of shoppers heading through Aldi and Lidl’s doors – although Morrisons may have to accept lower margins and profitability as a result,” said Gray. “This is a price it may just have to stomach.”
City analyst Shore Capital judged the results a continued disappointment, highlighting the key significance of its next quarter trading results. The business had entered a critical trading phase not just due to the Christmas period but because it trades against two years of negative LFL sales, said analysts Clive Black and Darren Shirley.
“It is essential that the group trades much more robustly in the current quarter and then displays more evidence than it is currently showing that its trading strategy is striking a much stronger chord with British shoppers,” they said. “There are plenty of headwinds and bumps in the road facing Morrisons, albeit a brighter future may yet transpire for its beleaguered investors.”
Sainsbury and Tesco
Shore Capital retained its forecast of full year pre-tax profit at £325M but warned of the potential impact of new price initiatives from rivals Sainsbury and Tesco. Morrisons posted its results on the day Sainsbury and Dansk opened their first batch of discount stores in northern England today, it noted. “We will be interested to see if the Netto trail evolves into a material venture in time, so giving Sainsbury access to the rapidly growing discount channel, where its brand has traditionally been a square peg in a round hole.”
The analysts retained their ‘hold’ advice on the retailer’s stock.
Meanwhile Morrisons’ management put a brave face on the figures, claiming progress was being made on the delivery of its three-year recovery plan. Philips said: “Morrisons is meeting the challenges created by a period of intense industry competition and structural change with quick and decisive action.”
The retailer was on track to generate £2bn of cash and £1bn of cost savings over three years, he added. Morrisons expected underlying profit before tax to range between £335M–£365M, after £65M of new business development costs and £70M of one-off costs.
