“Over the year, like-for-like (LFL) [sales] were down significantly on a weak base, amid worryingly flagging footfall,” said George Scott, senior consultant at Conlumino.
“The Christmas period, when consumers typically ramp up their basket spend, is a true marker of where grocers are at and its Christmas LFLs were notably worse than those of Tesco, Sainsbury and Asda. Moreover, we believe that, on sales volumes terms, its loss of ground was even worse.”
Scott said its attempts to get back on track “have had some merit”, but that “it has been late to the game and its initiatives appear disjointed”. He advised a return to a simpler pricing dynamic, such as that adopted by Tesco, rather than “promotional gimmicks”.
In addition, Morrisons’ development of sales channels had not been compelling enough, he argued, with growth in convenience store numbers offset by failing to use its fresh food offer to full effect. However, he conceded its online sales achieved “promising momentum” across the year, reaching £200M.
“Morrisons needs a clearer strategy that plays to its roots more effectively and helps it to reconnect with its traditional customer base,” Scott summed up. “To this end, we believe new personnel at the top have real credibility, with the requisite experience to cope with the mammoth challenge of turning Morrisons’ fortunes around.
“However, with price competition still intense at the start of 2015 and basket sizes showing no size of increasing, it is not yet clear how and where Morrisons can win back customers from.”
‘Intensity, pace, consistency’
Meanwhile, Shore Capital analyst Darren Shirley claimed Morrisons’ new ceo would add “intensity, pace and consistency” to its trading strategy.
Anticipating Potts’s arrival on March 16, Shirley backed the supermarket chain’s £1bn investment in price cuts, but said the approach had lacked initial momentum.
However, he continued: “In David Potts we believe that intensity, pace and consistency will be delivered, noting that the broad thrust of the strategy remains intact as per this results announcement, something that we welcome.”
Morrisons’ lacklustre performance over the past two years made it easier for Potts to kick off his tenure by delivering meaningful improvement, said Shirley.
The retailer’s ‘Market Street’ format, vertical integration with suppliers and Britishness would be linchpins of a successful recovery plan, with interim results set to offer a good indication of progress, he believed.
Another pillar of its strategy would be cash conservation and debt reduction, helped by cuts in capital expenditure and a modest property disposal scheme, he acknowledged.
Shirley cut Shore Capital’s previous 2016 full-year pre-tax profit estimate of £429M by £50M–£75M, with only modest improvement being made in the business to begin with.
Summing up the 52% plunge in annual pre-tax profit and 5.9% drop in like-for-like sales excluding fuel, he said Morrisons had faced a “tumultuous” financial year.
For more on Morrisons’ full-year results, click here.