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Morrisons ‘ups its game’: City analysts

1 commentBy John Woods , 26-Nov-2012
Last updated on 26-Nov-2012 at 18:44 GMT

Morrisons appears to be upping its game after its “very disappointing” third quarter, according to Shore Capital analysts Clive Black and Darren Shirley.

Black and Shirley’s comments followed the latest Nielsen report on supermarkets’ market share.

While the report gives a gloomy image of the overall food retailing sector, describing it as “pretty poor in recent weeks” with sluggish revenues and margins under pressure, it also highlighted a number of positive factors.

Sainsbury remains the star performer among the big four supermarkets with sales growth of 3% for the four weeks to November 10, compared with a market average of 2%. Analysts suggest it was probably the only one among the big four to have positive like-for-like sales.

While Morrisons continued to underperform its peers, Black and Shirley noted “a modicum of encouragement” in that the retailer achieved sales growth of 0.3% compared with a fall of 0.5% in the previous month.

Slammed

Earlier this month the analysts had slammed Morrisons’ third quarter figures saying: “We are very worried about the trading performance of ‘bog standard’ Morrisons superstores and productivity of an expanded and extended supply chain that is grappling with materially lower volumes.”

They also questioned Morrisons’ role as a food manufacturer, warning manufacturers could not cut costs “as quickly as sales go out of the door”. They added: “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.”

In their latest report they attributed the improvement in Morrisons’ “momentum” to a number of factors. They said its next quarter had easier comparatives, so this should make its like-for-like figures look better. Morrisons has opened five superstores after a few months of inactivity which should bolster its overall sales figures.

They also pointed out that Morrisons has taken remedial action on value with some aggressive offers. But they still warned that ‒ after stripping out inflation and the new stores’ contributions ‒ they expect volumes to be weak.

Negative

Tesco and Asda both achieved sales growth of about 1%. That meant that like-for-like sales and volumes were both negative and the analysts warned that an improvement at Morrisons could hamper Asda.

The report was upbeat about the other major players in the sector. It said Marks & Spencer continued to trade soundly in food with sale up 1.5%, but it described Waitrose as “the star of the show” with sales growth of almost 8%.

They added: “Middle ground players, the Co-op and Iceland, also look like they have had a good relative trading period through to mid-November, which may lead us to eat our words about them being Christmas laggards.”

They also highlighted Aldi’s sales growth figures of about 40%, and describing them as “quite remarkable”.

1 comment (Comments are now closed)

City speak

Why do analysts speak in terms that no one else can understand? Can someone explain what negative operational gearing means?

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Posted by Jerome
26 November 2012 | 12h24

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