“Thankfully, from a Morrisons’ shareholder perspective, it is clear Mr Potts is no shrinking violet,” said Shore Capital analysts Clive Black and Darren Shirley, ahead of the firm’s financial year 2016 half-year end on August 2.
“It’s a view supported by the extensive and prompt change in senior executives and the material reduction in the central overhead base of the company in the period under consideration.”
‘Not for the faint-hearted’
Appointing Potts to the helm of Morrisons had “not been for the faint-hearted” but he had taken control of a business needing material self-improvement, within an industry that is “demonstrably challenging, albeit maybe over its darkest hours”.
Shore Capital repeated its full year current pre-tax profit expectation of £300M – £260M after deducting £40M of one-off costs) and an earnings per share of 9.6p.
Since joining the business, Potts was said to have strengthened both the commercial and retail functions with the appointments of “seasoned campaigners” Darren Blackhurst, to the role of group commercial director, and Gary Mills, as group retail director.
Morrisons had also recruited Tom Richardson, from Australian supermarket chain Coles, as meat category director.
With further senior appointments likely, the ceo was likely to draw upon the new recruits’ views and perspectives in forming overall plans and ambitions for the group, said Black and Shirley.
Further senior appointments likely
Consequently the retailer was likely to post a “more intermediate update” on Morrisons’ strategic direction in September, rather than “a definitive vision” and route for the future, which the analysts expected to come later.
“Thankfully, from a Morrisons’ shareholder perspective, it is clear Mr Potts is no shrinking violet.”
- Shore Capital
The retailer is due to post a quarterly management statement – the first under the full guidance of Potts – on November 5, ahead of interim results on September 10.
In its last financial update, first-quarter results posted in May 7, like-for-like (LFL) sales fell by 2.9%, including a 1% online contribution, ex-fuel and ex-VAT.
Meanwhile, trading remained challenging for the British supermarkets, said the analysts, as the majors grappled with deflation and pricing and gross margin reset, said Black and Shirley. That applied to superstore groups in general but Morrisons and Tesco in particular, as they sought to “rebalance the overall value equation versus the limited assortment discounters”.
That made a tight grasp of costs, both goods and operating expenses, essential, said the analysts. Cost savings, and the resources they releasd, were as much about improving the basis to invest in strengthening the Morrisons’ proposition to drive footfall, and “so trade the stores harder”, as they were about supporting “debilitated” trading profit margins, they added.
Shore Capital forecasts for Morrisons
- First half LFL sales, ex-fuel and ex-VAT and including online, forecast to be down by 2.4%
- Price investment introduced in the second half of financial year 2015 expected to follow through into the second half of financial year 2016
- Some benefit from the central overhead initiatives to emerge in the second half, while the higher in-store labour participation rates should also follow through
- First half earnings before interest and tax in first-quarter trading to be £187M a trading margin of 2.3%
- Full year net debt of £2bn, down £330M year-on-year, reflecting strong progress in working capital management and the disposal of secondary properties
- Current pre-tax profit for finanicial year 2016 of £300M so down 13% year-on-year, equating to profit before tax of £260M