Morrisons’ surprise Christmas results show rising sales

By Michael Stones contact

- Last updated on GMT

Morrisons' results drew praise from Shore Capital
Morrisons' results drew praise from Shore Capital

Related tags: Better, Morrisons

Morrisons has posted like-for-like sales, excluding fuel, up by 0.2% for the nine weeks to January 3, in what one city analyst described as “a morale boost to sector sentiment”.

The result surprised analysts, following falling sales in previous quarters of between -2.4% and -2.9%.

Transactions rose by 1.3% in the period, marking the return of customers to the retailer’s stores, it claimed.

Total sales, excluding fuel were down 1.2%. The sales contribution from net new space fell by 1.4%, reflecting the recent disposal of 140 M Local stores and supermarket closures.

Morrisons also revealed plans to close seven more stores, marking the end of planned store closures.

The surprise result sparked a 10% surge in the retailer’s share price in early trading.

The retailer predicted rising underlying profit before tax in the second half of its financial year will drive the full-year figure to between £295M–£310M. That was before exceptional costs of of £60M, arising from store closures and restructuring.

800 head office roles axed

About 800 head office roles had been axed since the start of Morrisons’ 2015/2016 financial year.

Net debt was falling faster than forecast, according to the results statement. Full-year net debt was expected to fall to £1.65bn–£1.8bn – an improvement of £300M on previous forecasts.

Morrisons’ chief executive David Potts said he was pleased with the improved trading performance over the Christmas period.

Morrisons turns a corner?

“While there is, of course, much more to do, we are making important progress in improving all aspects of the shopping trip, and our customers tell us they are pleased with the changes.

  • David Potts

“While there is, of course, much more to do, we are making important progress in improving all aspects of the shopping trip, and our customers tell us they are pleased with the changes. In addition, we have made further progress in debt reduction, and our financial position is strong and getting stronger.” 

Potts thanked staff for their “very hard work and dedication”,​ both in serving customers over Christmas and in helping their communities, “especially in the north of Britain where the flooding has been so severe”.

The retailer recently donated £100,000​ to help the victims of recent flooding in Scotland and the north of England.

‘Especially encouraging trading’

City analyst Shore Capital welcomed the results. “We deem this to be an especially encouraging trading update from Morrisons, one that we believe will be warmly welcomed by long-term investors …”,​ said Clive Black and Darren Shirley.

The results may set the tone for an improvement in sector sentiment, ahead of other supermarket results expected later this week, they added.

Shore Capital also praised Potts’ contribution. “We are also pleased for ceo David Potts that he is seeing some encouraging traction as a result of the trading and operational strategy that is now under implementation,” ​they said.

See Conlumino’s comments on the retailer’s results in the box below.

Sainsbury is expected to publish its third-quarter results tomorrow (January 13), while Tesco will post its next trading statement on Thursday (January 14). Asda will post a trading statement next month.

Meanwhile, Morrisons also announced the appointment today of Andy Atkinson, as group marketing and customer director, in a move which completed additions to the retailer’s executive committee.

Morrisons’ results at a glance

  • Like-for-like sales, excluding fuel, up by 0.2%
  • Transactions up by 1.3%
  • Total sales, excluding fuel, fell by 1.2%
  • 800 head office roles axed since start of 2015/2016 financial year
  • Full-year net debt expected to fall to £1.65bn–£1.8bn
  • Full-year underlying profit before tax predicted to reach £295M–£310M

Conlumino comments

​Morrisons' Christmas results are a positive surprise following the grocer's underwhelming performance for the most of 2015 which resulted in a 52% drop in its annual profits in March.  A 1.3% LFL increase in the number of transactions in its core supermarkets is some evidence of Morrisons successfully driving increased traffic through its traditional stores. Morrisons continued its price investment over the trading period, moving away from promotions towards an EDLP strategy through selling bigger packs with better value. Moreover, the enhanced focus on premium products and a category reset in Beers, Wines & Spirits improved the competitiveness of its wider offer.

​Online was a high growth area as online sales doubled year-on-year, albeit against a very low sales base with Morrisons' web presence still being new to market. In contrast, Morrisons announced plans to close seven supermarkets, as it bids consolidate its presence around locations where it has strong appeal, which gathered pace when it sold off its convenience estate in Autumn last year.

​Meanwhile, Morrisons also focused on cost reduction in an effort to improve margins. Eliminating 800 head office roles over the period and in-sourcing certain business functions allowed it to lower its 2015/16 net debt significantly. Morrisons' attempts to simplify its positioning, both around clearer pricing and a more considered store presence around its mid-sized heritage supermarket format were key to an improvement in performance over the crucial festive period. However, it is too early to call this a recovery, with its LFL growth coming against a very weak comparative. Indeed, despite the improvement in its LFL sales, 1.1% year-on-year drop in LFL items per basket suggests that although customer numbers may have been up, they are spending less.

  • Duygu Hardman, analyst at Verdict Retail

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