“We have a large manufacturing business, so we can offer fantastic fresh food at the best prices,” Philips told BBC Radio 4’s Today programme.
The retailer reported pre-tax profits for the six months to July 29 down by £9M at £440M, compared with the same period last year.
Like-for-like sales, excluding VAT and petrol, dropped by 0.9%, compared with a rise of 2.2% last year.
Earlier this week (September 3), Morrisons began operations at its new fish processing plant in Grimsby. When fully operational, the plant is expected to employ 200 staff and produce about 200t of seafood a week.
The launch was part of the retailer’s strategy to manufacture more of the fresh food that is sold in its stores. “By developing this business, the company will be in an enhanced position to deliver quality fresh and frozen seafood more quickly into store – and at an affordable price for shoppers,” said the company in a statement.
City analysts Shore Capital noted that pre-tax profits were £23M ahead of its expectations. Growth in earnings per share was a “healthy” 10% to reach 13.1p and benefited from the retailer’s continuing capital reduction programme, said its analysts Darren Shirley and Clive Black.
But revenue growth was “subdued” they said. “If we assume in-store inflation was running at about 2−3% through the period, this implies volumes declines remain more material at 3–4%.
"Indeed, with management stating that the 48 Fresh Format stores are delivering 5% sales uplifts on conversions, we suggest the core untouched estate is maybe down closer to 2% on a like-for-like basis.”
Shirley and Black said productivity initiatives had supported Morrisons’ margin with a 10% increase in underlying earnings before interest and tax margin reported to 5.3%.
But they highlighted only a modest increase in depreciation of £4M, compared with management forecasts of a full-year increase of £30M. That could suggest a big increase in the second half (H2), they said.
“Management paints a challenging outlook for H2, citing economic and consumer pressure, though it states it will meet expectations for the year,” added Shirley and Black. “However, we would note that market expectations fell by £30M through H1 [first half], making targets less demanding.”
Shirley and Black concluded: “With concerns remaining around the trading momentum within the group, and the ongoing implications from Tesco’s margin investment initiatives, we remain cautious on Morrisons and reiterate our ‘sell’ recommendation.”
Philips blamed “the sustained pressure” on consumer spending for its like-for-like sales performance. But, he added: “We have made further good progress against our strategic objectives …”.
By the end of the year, Fresh Formats will appear in more than 100 stores and convenience stores in London, supported by its new distribution centre, are ready for launch, he added.
“This is a strong business with up to 11.5M customers every week,” said Philips.