There may be some positive signs, but competition is more intense than ever.
Challenging Christmas conditions impact Morrison’s results
- Supermarket reports 1.7% drop in like-for-like sales, while third quarter sales were down 1.2%, both figures beating market expectations
- CEO states trading conditions remained challenging throughout the period with sustained customer uncertainty
- Despite this company still expected annual pre-tax profit to be within analysts’ forecasts
- Market raises small cheer with shares rising 3% in early trading, but is a small recovery after underperforming over the past year
- Recommendation: Even with glimmers of hope on the horizon, such as the Amazon delivery deal, we maintain our ‘Hold’ recommendation
Morrisons was the first of the big supermarket groups to report on Christmas trading today and beat expectations, although the bar was set fairly low. Like-for-like sales in the 22 weeks to 5 January dropped 1.7%, better than the 2.2% fall the market was expecting, and third quarter sales were down 1.2% compared to a forecast of 1.8%. The CEO David Potts said trading conditions had remained challenging throughout the period with sustained customer uncertainty. On the wholesale side the performance was fairly flat and not helped by lower sales at McColls. The company said it had managed its costs well which meant that it still expected full year profits to be within its previous guidance despite the fall in sales.
The market raised a small cheer for today’s figures with the shares rising 3% in early trading, but that is only a small recovery after underperforming over the past year. Investors will be aware that the company can only manage costs up to a point to try to offset falling sales. Much of this is due to the strength of competition in the sector, a point which was underlined by data from Kantar today showing another fall in Morrison’s’ market share, while Aldi and Lidl continued to see theirs rise.
While there are some positive signs, such as the Amazon delivery deal, the intense level of competition is not going to diminish so we continue to see the shares as no better than a hold.
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