Morrisons unveiled a surge in sales and profits last week, but the retailer was rewarded not with an investor buying spree but by its shares touching a two-year low.
Investors have come to expect only bad news from retailers. Good news is assumed to be just a moment of calm before the storm.
That was exemplified in the reaction to Morrisons’ interims: the profit rise was flattered by a lower-than-expected depreciation charge; comparatives will only get tougher; the retailer made cautious comments about prospects. Those observations may be true enough, but Morrisons is now in a much better position to compete following chief executive Marc Bolland’s overhaul.
The retailer’s value credentials should help it hold its own as the downturn bites – helped, Bolland argues, by the “unique advantage” of its manufacturing businesses, which have been able to support promotions by delivering big volume increases. Morrisons is confident of meeting full-year profit expectations and aims to increase like-for-likes ahead of the market.
One of the biggest quibbles last week was over Morrisons’ share buy-back programme. The retailer is committed to spending£1 billion over two years on the scheme but, at the time of the results, had only forked out£50 million.
Such niggardly buying worried the City. Analysts concluded that if Morrisons was not buying shares when they were trading below target prices, then they could only be headed south. That turned out to be a self-fulfilling prophecy. But since the results Morrisons has been splashing out and has bought several more tranches.
Perhaps Morrisons has shown itself to be a canny buyer of shares as well as a canny retailer.
Downturn hits analysts too
The administration of Lehman Brothers leaves the bank’s highly regarded retail analysts Chris Walker and Fraser Ramzan among those facing an uncertain future.
It hasn’t been a good year for retail analysts generally. The travails of banks and retailers alike have resulted in the “downsizing” of several teams. Retailers often get a bit shirty about their treatment at analysts’ hands but the more of them that follow the industry, the healthier it is.
Let’s hope for the speedy return of some of the old faces.
George MacDonald is deputy editor of Retail Week