Morrisons – enjoying the gift of wholesale
LAST Tuesday saw Morrisons release its Christmas results. The numbers weren’t bad, but they were shy of being excellent.
There was a 3.6 per cent increase in like-for-like sales, which was slower than last quarter’s 5.6 per cent increase.
Still, positive like-for-likes is something rivals Sainsbury’s and M&S Food missed out on entirely this Christmas, so Morrisons has done pretty well in comparison.
A big part of the reason Morrisons hasn’t fallen into negative sales territory is the success of its wholesale division.
Supply contracts with Amazon Fresh and convenience chain McColl’s saw wholesale contribute three per cent to overall like-for-like sales. That offset a less impressive 0.6 per cent improvement in the retail business. The slowdown here was a sign consumers reined in spending during the festive period.
With German discounters Aldi and Lidl posting record results, that theory makes sense. Given Morrisons’ market position – it’s not chasing high-end shoppers – further strength in Aldi and Lidl packs a direct punch.
The other concern is the potential merger of Sainsbury’s with Asda. If that deal goes ahead the landscape will be even more competitive. Overall, the horizon looks a little foggier – Morrisons will need to stop the chill on the tills turning into a deep freeze.
But it’s not all doom and gloom, as Morrisons is in a better position than some. The majority of stores are owned rather than leased, which gives the group strong cash flows and help support the dividend.
The yield on offer is 4.3 per cent, and analysts expect the pay-out to rise over the coming years.
All in all Morrisons is doing pretty well. A healthy wholesale business means it can navigate the ever-more crowded marketplace with a safety net. That doesn’t mean retail sales can be ignored – they still need a shot in the arm, but it gives the group breathing space.
If the competition doesn’t pile in too hard in the short-term, and those friendlier store assistants work their magic, Morrisons may well deliver the goods.
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