UK retailer Morrisons has posted a 1.9% decrease in like-for-like sales (excluding fuel) for the half-year to 4 August, with total revenue up by 0.4% for the period.
Commenting on its performance, chief executive David Potts said that the retailer "stayed focussed on our Fix, Rebuild and Grow strategy, and were pleased to maintain the momentum of the turnaround against strong comparatives last year. Sales and profit progress was robust, and we again invested in improving our competitiveness for customers."
Here's how leading retail analysts viewed Morrisons' performance:
Clive Black, Shore Capital
"Q2 H1 FY2020 has been challenging for Morrisons, as reflected in negative LFL sales in its Retail division and a slowdown in the Wholesale component. Whilst this is so, it was anticipated by us, so reflected in the shave to our FY2020 PTP expectations in July; and Morrison will not be alone amongst British supermarkets in recording negative same store sales through the summer.
"Whilst this is so, we are very pleased to see a modest beat to our interim PTP expectations. Additionally, we are also pleased to be reiterating our FY2020 PTP and EPS forecasts, albeit who knows what is going to happen in respect of the UK’s relations with the EU; as The Times’ Matt Chorley states – ‘This. Is. Not. Normal.’.
"The confirmation of the distribution of a further interim special dividend is welcome as is a 4.3% increase in the ordinary, more so the latter perhaps, which supports our expectation of a further special pay-out in spring CY2020. Accordingly, Morrison’s stock is yielding nearly 7%, funded from FCF.
"What is most pleasing, however, about these results is that an experienced, capable and ambitious management is showing once again that it is agile and running Morrisons in a truly balanced and sustainable manner – noting genuine progress with sustainability initiatives we should add – that is most clearly manifested through cash flow generation."
Russ Mould, AJ Bell
“There are a lot of moving parts to Morrisons as a business, illustrating how it has had to be creative with finding new ways to make money than simply running traditional supermarket stores. Its wholesale business has become an important growth driver and it is encouraging to see a range of new activities including an extended deal with Amazon.
“Ocado is no longer the exclusive digital partner which means Morrisons is free to strike deals, perhaps on better terms, with other providers to help grow its online food retail market share.
“Like Tesco, Morrisons has been slashing prices in an effort to stop customers defecting to discounters Aldi and Lidl. But it is clear that Morrisons is having to pedal very hard to get up the hill. Simply having shops close to large communities is no longer enough to guarantee decent sales. That is why wholesale operations are likely to play a much bigger role in the future as it provides plenty of opportunities to accelerate growth.
“Management remains optimistic about the future and that is evident in not only dividend growth well above the current rate of inflation, but also a special dividend on top. These dividends wouldn’t be so generous if the supermarket thought that life was about to get much tougher.”
Bruno Monteyne, Bernstein Research
"This is a good start to UK food retail H1 result season. LfL was a touch better, profits were nicely better (3.1%), and a dividend (inc special) that is 2% better. All that despite investing in competitiveness and pointing to a better H2. Doomsday will have to wait another year. We think this set up bodes well for the other grocers in coming weeks.
"Retail contribution to LfL of -2.4% in Q2 was in line with consensus of -2.4% (tough comparables with last year on World Cup, Royal Wedding etc). Management expect retail LfL to improve from the Q2 level in H2
"Wholesale's LfL contribution was +0.5%. The company is still on track for £1bn annualised wholesale sales target and announced new partnerships with UK-based Harvest Energy and Lulu in the Middle East. MRW is also expanding its partnership with Amazon, whose sales growth will now feed into retail LfL rather than wholesale LfL."
Thomas Brereton, GlobalData
"Morrisons has navigated the haze of Brexit uncertainty and challenging year-on-year comparisons for grocers comfortably during H1, not allowing the 1.1% decline in retail contribution to l-f-l sales over the period to impact pre-tax profit growth and impressing stakeholders with a special interim dividend of 2.00p. Furthermore, in line with its “maintaining momentum” H1 ethos, it has also announced a flurry of wholesale partnership activity, most notably expanding Morrisons at Amazon through a multi-year partnership that will see Morrisons’ ultra-fast delivery offer on Prime Now expand to another five UK cities.
"Despite speculation in July that Morrisons was beginning to struggle against rivals after a stellar 2018, Morrisons’ core grocery division remains competitive, going toe-to-toe with heavy discounting from ASDA and Tesco’s third wave of centenary price cuts by reducing the prices across hundreds of own-brand products. And with the volume uplifts seen on those items (as noted in the H1 report), it is reasonable for Morrisons to expect retail l-f-ls to rapidly improve over Q3 and Christmas.
"Rumours of a possible takeover bid of Morrisons (either by Amazon or by a foreign private equity firm) continue to circulate, spurred on by a weaker pound and its continued cooperation with other retailers. With its 18-month outperformance of rivals (coupled with other qualities such as having 80% of property assets under freehold), it is understandable why it is an attractive target. In addition, in case of a complicated Brexit transition, its heavy UK supply dependence may be able to sustain lower prices for longer should the current Big Four price war continue.''
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
