News Column

Business analysis: Morrisons: Store's optimism should be treated with caution, says Nils Pratley

May 9, 2014

Nils Pratley

It is a very long time since a major UK supermarket chain reported a 7% drop in like-for-like sales. Units within Tesco's international shop of horrors manage it regularly, but Morrisons? David McCarthy, HSBC's analyst, called its first quarter update "as bad a statement as we can recall".

Indeed, he says, trading is even worse than it looks if one strips out maturing space and ignores the contribution of new channels like convenience stores. McCarthy calculates sales are down 9% in the core estate and volumes are 10% lower. That's serious.

Morrisons' shares nevertheless rose 4% as investors took comfort in the fact that chief executive Dalton Philips stuck by forecasts that full-year pre-tax profits will be pounds 325m-pounds 375m at an "underlying" level. The new price cuts are popular with customers, he says, and the three-year plan to remove pounds 1bn of costs is on track.

Recent experience suggests it is wise to treat Morrisons' optimism with extreme caution. As recently as last November, Philips was predicting an imminent return to like-for-like sales growth. Now it is staring at minus 7%.

"If like-for-like sales do not improve soon, we could be facing another profit warning/downgrade," concludes McCarthy. It's not an unreasonable view.

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Source: Guardian (UK)

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