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Morrisons’ results disappoint city as commercial boss steps down

1 commentBy Mike Stones , 09-Nov-2012
Last updated on 09-Nov-2012 at 11:33 GMT

Morrisons had 'squeezed its customer base', said Shore Capital
Morrisons had 'squeezed its customer base', said Shore Capital

Morrisons announced “very disappointing” third quarter results yesterday (November 8) and the departure of its commercial director Richard Hodgson.

The retailer revealed like-for-like sales down by 2.1%, excluding fuel, for the 13 weeks to October 28. Total sales dropped by 0.4%. Including fuel, like-for-like sales were down 1.3%, while total sales rose by 0.2%.

Shore Capital analysts Clive Black and Darren Shirley described the results as “a very disappointing update”.

Black and Shirley added: “We are very worried about the trading performance of 'bog standard' Morrisons superstores and the productivity of an expanded and extended supply chain that is grappling with materially lower volumes.”

‘Sales go out of the door’

Manufacturers cannot cut costs “as quickly as sales go out of the door”, they said. “So, we worry in Morrisons' case, if the vertical integration model is one that compounds the pressure on margins through the vices of negative operational gearing?”

At the heart of Morrisons’ challenges, they believed, was a move away from its core customers. “We are of the view that Morrisons has re-engineered its proposition in a way that, for whatever reason, is "disenfranchising' its core customers.”

While they thought this “an unintended consequence”, the change implied a move “too far away too soon from its value roots”.

The direct beneficiaries were Aldi and Asda – “fascias that retain strong value credentials”.

Recent category reviews – which had taken Morrisons' offer up the chain into higher category lines such as M-Kitchen and NuMe – had not attracted custom from the trade, said Shirley and Black. “An unintended consequence, again, of change has been a squeeze on its customer base and so the recorded market under-performance.”

Also, market share data for the UK supermarkets had revealed Morrisons’ “slowing sales momentum and widening under performance”.

Shore Capital repeated its ‘Sell’ recommendation on Morrisons stock.

Not moving upmarket

But Morrisons’ chief executive Dalton Philips denied that the retailer had deserted its core customers. “I’d refute emphatically that we are too upmarket," Dalton told the Yorkshire Post. "We are a value retailer and we’re not moving off that. We’re not moving upmarket.”

Morrisons said: “We expect the market to remain challenging for the remainder of the year. However, we continue to manage the business tightly and anticipate that our full-year financial performance will be broadly in line with our expectations.”

Meanwhile, the retailer announced that its commercial director, Richard Hodgson, who joined the firm in 2010 is leaving the day-to-day business.

Black and Shirley said: “Such a development does not suggest to us, at least, a totally harmonious senior team. A replacement is being sought and we will watch with interest to see how trading strategy evolves.”

But they added: “We do not believe that Morrisons' trading strategy over the last year has represented a 'square peg in a square hole' approach.”

Morrisons’ corporate services director Martyn Jones has been appointed interim commercial director pending the recruitment of a successor for Hodgson.

1 comment (Comments are now closed)

Stop buying back your own shares

Morrisons have bought back £850 of their own shares over the past one-and-a-half years, while increasing their debt to over £1.5bn.

It buys back shares virtually every working day, irrespective of the share price at the time.

Its chairman, Ian Gibson, oversaw buying back shares in his previous position as chairman of Trinity Mirror which proved to be a complete waste of shareholders' money.

If only Ken Morrison was 20 years younger.

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Posted by Richard Wilson
09 November 2012 | 13h46

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