UK retailer Morrisons has posted its eighth consecutive quarter of sales growth, with a 2.5% increase in like-for-like sales in its third quarter. Chief executive David Potts hailed the group’s performance as an indication of how Morrisons continues to “work towards becoming a broader, stronger business.” Here’s how the analysts saw it...
Clive Black, Shore Capital
“In a clearly competitive UK grocery market characterised by positive mix and modest inflation, albeit flatter volumes, we see Morrison now delivering sustained year-on-year growth-on-growth as a real achievement of CEO, David Potts CBE and his team. The business is generating positive leverage but also investing to sustain top line progress, to us relative competitiveness may have improved in the quarter, supporting ongoing trading margins and building free cash generation. The Group’s balance sheet is amongst the strongest in the sector providing the firmest possible basis for Morrison to deliver future robust EPS & DPS growth and, as we have previously outlined, scope for the Board to consider ongoing shareholder friendly initiatives in time too.”
IGD Retail Analysis
"While inflation has lifted headline growth, Morrisons is structurally advantaged to minimise cost pressures through its ownership of UK-based manufacturing businesses. It also commented how it was noticing a lessening of input inflation through the quarter as the impact of last year's devaluation began to dissipate. That said, Morrisons has just lifted the price of four pints of milk from £1 to £1.10, following a sustained increase in farm gate prices, a move that could well be followed by competitors."
Barclays European Food Retail Equity Research
“[Morrisons] notes it worked hard to limit the impact of lower sterling on imported food prices. The company states that LFL volume was again positive. LFL number of transactions were +2.1% in 3Q (vs +3.2% in 2Q). LFL items per basket fell by -3.6% compared with -5.5% in 2Q. […] Also, the new ordering system is fully operational and the company expects the system to help availability in the period over Christmas and the New Year.”
Bruno Monteyne, Bernstein Research
“Morrisons has consistently stated that becoming more competitive is a key focus of their 'Fix, Rebuild and Grow' strategy, and report achieving a ‘step up’ in competitiveness in Q3. With total LfL of +2.5% and positive volume growth versus (Kantar) inflation of +3.2%, this suggests that Morrisons is investing in price ahead of the market. […] Morrisons reports positive LfL volume growth remains in Q3, noting that their definition of volume growth adjusts for consumers trading up to larger pack sizes. LfL transaction growth was +2.1%, a -110bps sequential decline from the prior quarter, but this was more than offset by an easing the trend for smaller baskets with items per basket down -3.6% versus -5.5% in Q2.”
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