Morrisons' ‘dire trading’ persists: City analysts

By Michael Stones contact

- Last updated on GMT

Morrisons' latest results were described as 'dire' by City analysts Shore Capital
Morrisons' latest results were described as 'dire' by City analysts Shore Capital

Related tags: Morrisons, Retailing

Morrisons has reported first quarter like-for-like sales down by 7.1% for the 13 weeks to May 4, after what City analyst Shore Capital described as “dire trading”.

In worse-than-expected results, the retailer reported total sales down by 4.2% – or 5.6% including fuel – for the period.

Shore Capital analysts Darren Shirley and Clive Black said the firm’s like-for-like sales, excluding fuel, were “especially weak”.

Same store volumes were likely to be even weaker at about 8% down, while claims that Morrison.com was performing ahead of expectations were irrelevant, they added. Shore Capital repeated its ‘sell’ advice on Morrisons’ stock.

David Gray, retail analyst at Planet Retail, said the results revealed how the retailer was “struggling to find its place in an increasingly polarised grocery market”, ​characterised by strong growth at the top and bottom ends of the sector.

Consumers enjoyed more choice than ever but were spending less, while investments in store refurbishments, product ranges and fuel promotions had yet to deliver results.

‘Cannot solve the chain’s problems’

“Morrisons answer to under-performance – notably investment in convenience and online grocery expansion – cannot solve the chain’s problems on their own,”​ said Gray. “Morrisons needs to get the bread and butter of its retail offer right: its core grocery business – stores trading from 20,000–40,000 square feet. It is here where the real problem lies.”

Gray added that “tinkering around the edges”​ with convenience and e-commerce will not provide a long-term solution.  

Morrisons’ plan to slash the prices of 1,200 everyday items, announced last week, was a good start but Gray doubted whether the chain would be able to match discounters’ pricing long term without impacting margins.

“So, at present, Morrisons is stuck between a rock (the discounters) and a hard place (M&S Food/Waitrose), not to mention additional threats from Tesco and its UK improvement programme. It is a very uncomfortable position to occupy, one from which turnaround will be all the more difficult,” ​he said.

‘Huge challenges that the firm faces’

Joshua Raymond, chief market strategist of Cityindex.co.uk, had expected like-for-like sales to fall by about 5.9% compared with the 7.1% reported by the firm. “This shows a continued deterioration of sales to the downside and highlights the huge challenges that the firm faces,”​ said Raymond.

Market expectations were already fairly low, given Morrisons’ warning last week that like-for-like sales were unlikely to improve soon. The firm’s share price, which has fallen 15% in the past three months, revealed “investors are not placing large bets on Morrisons’ potential to turn itself around just yet,” said Raymond.​ Moreover the tone of the retailer’s quarterly sales decline was unlikely to change that.

Dalton Philips, Morrisons’ chief executive, insisted the plans set out with its full-year results in March were on track. “The reaction of our customers to the 1,200  ‘I’m Cheaper​’  price cuts we announced last week has been very positive. Although it will take time for their full impact to be felt, we are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers.” 

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