Morrisons posted a drop in like-for-likes in its half-year results and a dip in profits but turnover was up. But as it pushes ahead with rolling out its Fresh Format and plans its first moves online, Retail Week outlines what analysts think of the grocers prospects.
“Morrisons’ update offers yet further evidence that the UK food & grocery market is entering a markedly more difficult phase, underpinned by lower food inflation and sustained pressure on consumer disposable income. For Morrisons, a decline both in its like-for-likes and profitability is also indicative of the grocer’s high exposure to the north, and intensifying competitive pressures. However Morrisons’ fresh emphasis positions it in good stead for the long term, with fresh set to replace space as the key battleground for food and grocery market share. Indeed, the food & grocery market is entering a new phase, with a clear switch in focus among the major players away from unbridled space expansion towards areas such as format development, online, non-food and convenience stores. Morrisons’ update highlights that the grocer is being proactive in responding to these trends.” - Joseph Robinson, Conlumino
“Customer numbers have declined on a like-for-like basis, suggesting that the core Morrisons shopper is being tempted away from the retailer by increasingly aggressive price competition from its grocery rivals. The retailer has been slow to react to growth seen both in online and convenience, and continues to approach both areas with caution. Without addressing both multi-channel and convenience expansion quickly the retailer will struggle to increase its food & grocery market share.” - Andrew Stevens, Verdict
“Morrison has said that the 10bps improvement in margin is in line with their guidance, but with like-for-like sales growth slowing, consensus expectations have been drifting down and questions have been raised about the success of the Fresh Format roll out and their promotional stance. Morrisons is clearly confident because the second half will see the number of Fresh Formats increase from 45 to 100. Morrisons has also pointed out that their M Savers range is the fastest growing own-label range in the market (up 40%, but from a relatively low base) and that they have launched their Catalina voucher at till system (similar to Sainsbury’s) as another method of promotion.” - Caroline Gulliver, Espirito Santo
“Interim pretax profits are flat, which is slightly worse than we were going for and we are downgrading for the full year by £5m as a consequence. We think that Morrisons should spend considerably less than it plans to currently. In the short term, industry underperformance is not helpful. We appreciate that Morrison still has significant self-help; however, we expect that lower sales will impact margins. We are concerned that, because food retailing is highly operationally geared, Morrison’s numbers could have considerable downside risk.” - Philip Dorgan, Panmure Gordon
“Morrison has always been scale disadvantaged relative to its peers and the pace of change from Dalton Philips has not turned out to be fast enough. As we expect the industry to remain just as competitive and consumer demand to remain subdued given inflation is coming back into the system, we feel Morrison will struggle to outperform its peers.” - Kate Calvert, Seymour Pierce
“Looking forward, management paints a challenging outlook for teh second half, citing economic and consumer pressure, though it states it will meet expectations for the year. However, we would note that market expectations have fallen by c£30m through teh first half, making targets less demanding. We may well need to upwardly adjust our bottom of the range forecasts for Morrison of CPTP of £889m (consensus £939m), though with concerns remaining around the trading momentum within the group, and the ongoing implications from Tesco’s margin investment initiatives we remain cautious on Morrison.” - Darren Shirley, Shore Capital