Shore Capital analysts Clive Black and Darren Shirley said: “We believe that the business has lost touch with some of its core customers but not attracted new ones, particularly as a result of some of the range reviews and, arguably, fresh formats to a degree.”
Also the retailer had failed to take advantage of either convenience or online sales, which were benefitting its rivals.
Morrisons also noted the “accelerating importance of other channels, such as online and convenience”, which it had only recently entered, it said.
The retailer said that Christmas trading continued to be challenging and described its performance as “disappointing”. It said in a statement: “Hard-pressed consumers were increasingly shopping to a budget and vouchering was a prominent feature of a highly promotional market.”
In the six weeks to December 30, total sales − excluding fuel − were down by 0.9% (0.5% including fuel).
Like-for-like sales fell by 2.5% and by 2.2% including fuel.
But the retailer said its financial position remains strong. Full-year net debt was expected to be in the range of £2.1−£2.2bn. Its two-year programme to retire £1bn of equity, originally announced in March 2011, was well-advanced, it said. “To date we have acquired 329M shares at a total investment of £931M.”
Black and Shirley predicted “no quick fixes” for Morrisons as difficult trading conditions continued. “Quite how management 'steadies' the good retail ship Morrisons remains to be seen,” they added.
‘Strong asset base’
But it was important to recognise Morrisons remained a highly profitable business, with a strong asset base, said Shore Capital. “The business is not broken at all but its engine requires a bit more than fine tuning to put it back on the straight and narrow.”
Urgently needed was a clear diagnosis of the problems and a “credible prognosis for self-improvement”.
Shirley and Black predicted that reaching such a position could take some time and possibly involve “material investment in trading margin”.
Shore Capital retained its ‘sell’ advice on Morrisons stock.
Morrisons ceo Dalton Philips said: “In a difficult market our sales performance was lower than anticipated, but we have a strong business and significant opportunities to advance our strategy, as we accelerate our multi-channel offer”.