Morrisons’ interim results: analysts react

Morrisons progress in limbo, say analysts

By Rod Addy

- Last updated on GMT

Morrisons has reported half-year profits down by more than 30%
Morrisons has reported half-year profits down by more than 30%

Related tags Morrisons Supermarket

Morrisons’ business strategy is balanced on a knife edge, with financial experts divided over its merits.

Commenting on the company's interim results, published today​ (September 11), Conlumino analyst George Scott’s assessment was negative. “The slide continues for Morrisons, though this latest tumble is even deeper than previous periods,”​ he began.

The fact that the retailer’s sales had declined even against weak figures last year was “really worrying​”, he said.

The company was “constantly playing catch up and time is not on its side”,​ said Scott. However, he accepted that Morrisons did have some strengths to draw on. These included its vertical integration model, which inspired confidence in sourcing among consumers, and its investment in convenience and online channels and price cuts.

‘Risky game’

Julie Palmer, partner at corporate restructuring firm Begbies Traynor, issued a downbeat response. She claimed Morrisons’ decision to keep paying a high return to shareholders while selling off property assets was “a risky game”.

“This time around, Morrisons’ gamble has failed to pay off. Both like-for-like sales and underlying pre-tax profit have decreased dramatically as Morrisons has struggled to compete with spiralling prices and to find its feet amongst the five ‘value’ retailers, with its products still deemed too expensive against the likes of Asda.”

She acknowledged that Morrisons had generated £551M from operations in the first half of its financial year, but cautioned: “… It is clear it should re-invest that cash in strengthening its online and convenience store offering and its price competitiveness rather than placate shareholders before it’s knocked out of the race altogether.”

Darren Shirley, Shore Capital analyst, greeted its interim results cautiously. He highlighted the latest Kantar market share data indicating Morrisons’ trading performance had improved since its half-year end in July.

He also pointed out that the supermarket chain had commenced a three-year programme of price reductions, involving an investment of about £1bn. This had only been introduced in May and Shirley stressed it would take time for shoppers to register any change and “react meaningfully”.

‘Perfect storm’

However, he also drew attention to the “perfect storm” ​all traditional grocery retailers were struggling with, with food sales markedly down and rising competition from hard discounters Aldi and Lidl.

And he said Morrisons did not operate in a vacuum and would therefore have to contend with price-cutting and other strategies from rivals such as Tesco.

“Hence it is too early for us to over-react to a demonstrably better trading trajectory but if it is sustainable then the model that management presented in March may be starting to gain some traction …”​ said Shirley.

As a result, he maintained Shore Capital’s full-year profit forecasts of £325M for the retailer.

Morrisons reported pre-tax profit down by almost a third in the six months to August 3, from £344M in the same period last year to £239M. Like-for-like sales fell by 7.4%. For full details on Morrisons’ interims, click here​.

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