Morrisons in the firing line
A DRAMATIC slump in sales over Christmas will heap further pressure on Morrisons chief executive Dalton Philips next week.
The Bradford-based group’s key f estive trading f i gures, to be revealed on Tuesday, are expected to show another fall in sales of between 3pc and 4pc for the six weeks to January 4.
However, this will mark an improvement on the 5.6pc slide last Christmas, buying Philips, pictured, more time if City predictions come true.
Investors hope Philips’ £ 1bn investment in price cuts over three years and the launch of its ‘Match & More’ card will have started to pay off in the face of growing competition in the grocery sector.
Brokers at Jefferies said: ‘It is still early days, but our impression is that Morrisons is gradually establishing its everyday low pricing credentials (through pricing consistency), winning back customer trust and starting to stem customer losses to discounters.’
Morrisons’ ( down 4.55pc to 176.3p) quarterly figures in November suggested the supermarket was on the right track.
But retail analyst Nick Bubb said: ‘After the analysts trip at the end of November I thought there was a good chance that Christmas likefor-like sales might just about level out, given the weak comparisons.
‘But with the industry pressures and price deflation I am not so sure now. Either way, the future of Dalton Philips and the final dividend both depend on a decent Christmas performance.’
The supermarket price war has stepped up a gear with Tesco slashing prices on 380 branded goods by an average of 25pc, Asda cutting the prices of 2,500 ‘essentials’ and Sainsbury’s announcing further reductions as part of its £150m price-cutting plan.
Investors will also be eager to hear about Morrisons’ convenience store roll out. It has scaled back its initial aggressive roll out plans for its M local chain amid weak sales. The rapid expansion of smaller stores by rivals was seen as a reason Morrisons had struggled. But Tesco ( down 5.15p to 204.1p) revealed earlier this week that around half of the 43 loss-making stores it plans to close are Tesco Express convenience stores.
Tesco’s Christmas trading update earlier this week was a better-thanexpected 0.3pc fall and a new cost cutting and price cut strategy launched by chief executive Dave Lewis pleased the City and shares leapt 15pc on Thursday. But his plan did not mask its underlying issues and credit rating agency Moody’s downgraded its rating to junk status. It cut its short-term rating to ‘not prime’ and Sven Reinke, vice president and senior analyst at Moody’s, said: ‘We have downgraded Tesco’s r ati ngs because of our expectation that the structural changes in the UK grocery retail market will continue to challenge the company’s operating performance even with the benefits of the significant restructuring ac t i o ns a nnounced by t he company.’
Reinke said that Tesco’s efforts to stabilise its UK operations and protect its balance sheet, while helpful, would take time to implement, adding the company’s high levels of debt meant it was unable to give it a strong investment grade.
The Big Four supermarkets are facing stiff competition from the discounters Aldi and Lidl and Sainsbury’s (down 10.6p to 241.8p) revealed a like-for-like sales fall of 1.7pc last Wednesday.
But there was better news for the upmarket grocers with Waitrose and Fortnum & Mason outperforming, and while M&S’ (up 1.1p to 448p) clothing sales were dire, its food arm managed a 0.1pc rise.
Online grocer Ocado could be feeling the squeeze and analysts at Shore Capital said the branded product price cuts by rivals will be ‘especially bad news’ due to Ocado’s ‘price matching claims’.