FIGHT­ING BACK

Mor­risons be­comes cheap­est of Big Four as sales per­for­mance im­proves

Yorkshire Post - Business - - FRONT PAGE - ROS SNOW­DON CITY EDITOR ■ Email: ros. snow­don@ ypn. co. uk ■ Twit­ter: @RosSnow­donYPN

MOR­RISONS IS ex­pected to re­port an im­prove­ment in un­der­ly­ing sales when it re­ports an­nual re­sults on Thurs­day.

The newly re­in­stated FTSE 100 firm has been work­ing hard to cut prices and re­store its for­mer rep­u­ta­tion as be­ing one of the cheap­est on the high street.

Ac­cord­ing to the lat­est Which? re­port, Brad­ford- based Mor­risons has over­taken Leeds- based Asda as the cheap­est main su­per­mar­ket fol­low­ing Mor­risons’ 1,000 price cuts ear­lier this year.

Which? said Mor­risons un­seated long- stand­ing cham­pion Asda, which has been cheap­est ev­ery month since it started track­ing in July 2013.

Mor­risons is ex­pected to re­port a 2.1 per cent de­cline in like­for- like an­nual sales on Thurs­day, a marked im­prove­ment on the 5.9 per cent fall in 2014.

How­ever its fi­nan­cial per­for­mance will re­main un­der pres­sure, with un­der­ly­ing pre- tax prof­its pre­dicted to fall for the full year to £ 307m, down from £ 345m in 2014, as fierce com­pe­ti­tion in the UK gro­cery sec­tor con­tin­ues to bite.

The group said it would also be hit by £ 60m of re­struc­tur­ing costs from store clo­sures and ax­ing around 700 jobs at its head of­fice un­der chief ex­ec­u­tive David Potts.

Shore Cap­i­tal an­a­lyst Clive Black said the gro­cery sec­tor looks set to “re­main in­tense” in the months ahead, with ma­jor stores con­tin­u­ing to cut prices on fresh and chilled foods as Ger­man dis­coun­ters Aldi and Lidl con­tinue to threaten their mar­ket share.

It comes af­ter Mor­risons sur­prised the mar­ket over Christ­mas by re­port­ing a 0.2 per cent rise in like- for- like fes­tive sales.

Since then, it has pressed ahead with plans to move the busi­ness on to firmer fi­nan­cial ground, an­nounc­ing a trade tieup with on­line re­tailer Ama­zon and price cuts on more than 1,000 prod­ucts.

Mor­risons said the sup­ply deal

The group is seek­ing to self-im­prove within tight cap­i­tal con­trols. Clive Black, an­a­lyst at Shore Cap­i­tal

will give Ama­zon cus­tomers ac­cess to fresh and frozen prod­ucts by pro­vid­ing hun­dreds of items through its food de­liv­ery ser­vice Ama­zon Pantry and its sub­scriber ser­vice Ama­zon Prime Now.

Mr Black at Shore Cap­i­tal said: “Mor­risons con­tin­ues to pleas­antly sur­prise us. The group is seek­ing to self- im­prove within tight cap­i­tal con­trols. It is a long jour­ney but travel has com­menced.

“Op­er­a­tional im­prove­ment should lead to free cash gen­er­a­tion that share­hold­ers can ex­pect in time to re­ceive in our view. We ex­pect chief fi­nan­cial of­fi­cer, Trevor Strain, to em­bel­lish the group’s fi­nance and bal­ance sheet strat­egy a lit­tle more at the group’s pre­lim­i­nary re­sults on March 10. We now wait to see how the tie- up with Ama­zon builds.”

Mor­risons said it would also boost its web­site af­ter agree­ing a deal in prin­ci­ple with on­line gro­cery re­tailer Ocado.

Mor­risons said it would take up space at Ocado’s new cus­tom- er ful­fil­ment cen­tre in Lon­don, in a move to “sell to cus­tomers all over Great Bri­tain”.

But it said the agree­ment is sub­ject to terms and would only be agreed if Mor­risons achieves prof­itable growth on­line. Mor­risons signed a £ 170m con­tract with Ocado in 2013, pro­vid­ing the su­per­mar­ket with its first on­line de­liv­ery ser­vice.

An­a­lyst James Collins at Stifel said: “Hav­ing stopped the rot and im­proved stan­dards in stores, the Mor­risons man­age­ment team has moved ef­fec­tively to ex­pand the geo­graphic reach of its dot­com busi­ness to a more cred­i­ble level. An­other tick in the box of sen­si­ble man­age­ment moves.

“Out of the left­field, it has also an­nounced a deal to whole­sale to Ama­zon.

“Of the big four, Mor­risons most cer­tainly has the least to lose from giv­ing Ama­zon a kick­start for its UK gro­cery am­bi­tions and will ad­di­tion­ally ben­e­fit from cap­i­tal- light growth and a wider brand reach.”

GOOD NEWS: Mor­risons’ turn­around ap­pears to be gath­er­ing pace as the rate of sales de­cline slows but prof­its still re­main un­der pres­sure.

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