The nation’s fourth largest retailer has predicted pre-tax profit, before exceptional items, of £335–365M its 2014–15 financial year. That compares with financial analysts’ forecasts of about 342M. If the analysts are correct the results would amount to the consecutive third year of falling profits and less than half the £785M posted in 2013–14.
‘Everything isn’t honky-dory’
City analyst Shore Capital said Morrisons’ stock was entering a key stage of its development. “Whilst everything isn’t honky-dory, if it were Mr Potts would not be appointed, the business has a more appropriate business strategy and very favourable multi-year comparatives,” said Clive Black and Darren Shirley.
The results published on Thursday will represent “stepping stones to a brighter future,” they said. While Potts will take some time to settle in, “he is a highly experienced, intelligent and driven individual that we expect to grab Morrisons by the horns”.
“We believe the insights and emphasis that a very fit and sharp-eyed Mr Potts will bring should create a firmer basis for an improvement in sales at the company, and we know that the market is particularly sensitive to sales momentum in retail at this time.”
Seven-point list
The seven-point list, designed to accelerate the pace of the commercial execution of the retailer’s recovery strategy included: making the most of the store’s vertical integration, reviving the retailer’s Market Street promotions and re-evaluating the 25-year contract with Ocado. See the full list below.
Shore Capital’s to-do list
• Improve consistency of offer
• Reboot Market Street
• Exploint vertical integration
• Boost offer by rethinking private label initiatives and proprietary brands
• Deliver operational self-improvement programme
• Review Ocado contract
• Develop financial plan
After Potts’s appointment Shore Capital upgraded its advice on Morrisons’ stock from ‘hold’ to ‘buy’. Potts will begin work on March 16.
Meanwhile, price tracker information from Morgan Stanley Research published today (March 9) revealed a widening gap between Morrisons’ prices and those offered by Tesco. Its AlphaWise UK Food Retail Price Tracker measures the prices of about 500 stock keeping units at the big four supermarkets – Tesco, Sainsbury, Asda and Morrisons, covering the four weeks to March 1.
“Morrisons’ prices further slightly deteriorate,” according to the research. “Having 2014 with a 3.5% price gap to Tesco, our sample basket was 2.8% more expensive in Feburary, which shows some deterioration from the 0.3% cheaper seen last October.”
How to accelerate the strategy
• Improving the consistency of offer at Morrisons
• Going back to the future by re-acquainting where possible the quirky but so wonderful features of Market Street, so much of which was sadly dumbed down
• Making the most of vertical integration. Extolling even more fully, and again consistently, the virtues of its British sourcing, traceability and heritage; something messrs Aldi and Lidl may struggle with at times.
• Line-by-line, range- by-range and category-by-category bringing much needed strength to Morrisons, possibly re-visiting own-label initiatives and rethinking the role of the proprietary brand, where it was a differentiation and had leadership qualities in times gone-by.
• Giving confidence that the internal operational self-improvement programme can be delivered.
• Re-evaluate the 25-year contract (23 to run) with no break clause with Ocado
• With chief financial officer Trevor Strain, “who we feel is a supermarket ceo in the making”, developing a financial strategy that is right for the business and so shareholders in time.
Source: Shore Capital