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Morrison's on the back foot ahead of Christmas trading update as Bank of America downgrades to ‘underperform’

The FTSE 100 grocer is expected by some analysts to see the biggest decline in Christmas sales among the 'big four' when it updates the market on Tuesday

WM Morrison Supermarkets PLC - Morrison's on the back foot ahead of Christmas trading update as Bank of America downgrades to ‘underperform’

‘Big four’ grocer WM Morrison Supermarkets PLC (LON:MRW) is on the back foot ahead of its festive trading update on Tuesday after Bank of America (BoA) Merrill Lynch on Monday downgraded the company to ‘underperform’ from ‘neutral’ and cut its price target to 185p from 195p.

The move quickly sent shares in the FTSE 100 supermarket down 3.4% to 192.3p in mid-morning trading, continuing the firm’s overall share price decline across 2019.

READ: Supermarket sales suffer slowdown as shoppers hold off Christmas splurge ahead of election

With its financial year to end this month, Morrison's post-Christmas update will be crucial for investors to gauge its full-year performance, although consensus estimates are expecting flat sales for the festive period.

Jasper Lawler, head of research at London Capital Group, is also less than optimistic, saying on Monday that the share price fall, aside from BoA’s gloomy re-rating, is investors pricing in Morrison’s experiencing “the biggest Christmas sales decline among all the grocers”.

Gloomy January expected for retailers

BoA’s downgrade is also unlikely to provide investors with much hope that 2019’s Christmas season will turn out much better for the rest of the UK’s embattled retail sector.

Sales figures for the period released by Aldi on Monday showed that even the rapidly expanding German discounters were suffering a slowdown, as sales growth at the chain in the four weeks to 24 December slowed to 7.9% from 11% across 2018 despite total sales in the period hitting £1bn for the first time.

Markets.com’s Neil Wilson said that Aldi’s deceleration pointed to “arguably a bigger slowdown than had been expected”, and that with the group having suffered slower growth despite operating 47 more stores than the start of 2019, a poor Christmas performance could be expected across the sector.

READ: Aldi keeps up pressure on Big Four with £1bn of Christmas sales

Wilson added that December’s general election “may have had an impact, shortening the period in which UK consumers were prepared to splash the cash on groceries for Christmas”, the question, however, was how strong the impact will be on the figures.

AJ Bell’s Russ Mould is also sceptical that the retailers can beat the pessimism, saying that bad weather in the weeks leading up to Christmas and the New Year may have kept some shoppers away apart from buying the festive essentials, although brighter conditions in the week in between the two holidays could have enticed punters out again in search of bargains amid post-Christmas discounting.

However, he added that while a post-Christmas uptick may provide some relief, it did not bode well for profit margins if retailers were being forced to slash prices just to shift their stock.

“The perfect situation for retailers would be selling high volumes of goods over the Christmas season at full price. In reality what we might get is subdued volumes at cut price, which is the not the recipe for a healthy business”, he added.

“These early indicators would suggest the forthcoming retail updates may not be full of joy," Mould concluded.

Quick facts: WM Morrison Supermarkets PLC

Price: 181.55 GBX

LSE:MRW
Market: LSE
Market Cap: £4.37 billion
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