viewWM Morrison Supermarkets PLC

Morrisons fails to find any Christmas cheer as sales and market share decline

The FTSE 100 supermarket blamed a 2.8% drop in LFL sales for the 22 weeks to 5 January on “unusually challenging” trading conditions

WM Morrison Supermarkets PLC - Morrisons fails to find any Christmas cheer as sales slide

WM Morrison Supermarkets PLC (LON:MRW) has struck a decidedly gloomy note with its post-Christmas trading update as sales for the festive period failed to stem an ongoing decline at the ‘big four’ grocer.

For the 22 weeks ended 5 January, the FTSE 100 group reported that like-for-like (LFL) sales including fuel were down 2.8%, incorporating a flat performance in its wholesale division, while total sales fell 2.9%.

READ: Grocery spend hits record level in final quarter of 2019, but retailers suffer grim Christmas as sales growth slumps to four-year low

Morrisons’ chief executive David Potts attributed the sales decline to “unusually challenging” trading conditions that had persisted over the period amid sustained customer uncertainty, although the company said prices of its key Christmas items had been “very competitive” and “the same as or lower than last year”.

There was also little to celebrate from the latest set of grocery market data from Kantar, which showed that Morrison's market share for the final quarter of 2019 had fallen 2.9% to 10.3%, the biggest decline among the 'big four' grocers.

However, one ray of light was the group's recent sale of its store in Camden to property firm Berkeley Group Holdings PLC (LON:BKG) for £120mln, £35mln of which will be used to construct a new Morrisons supermarket and convenience store at the site.

Looking ahead, the firm said cost management efforts had managed to offset some of the impact of the challenging trading environment on LFL sales, and with four weeks of its current year remaining pre-tax profits were expected to be “within the current range of analysts’ forecasts”, which are currently between £400-431mln.

“As always, we will take some learnings into the new year, and look forward to 2020 with a strong plan and solid foundations on which to continue to grow", Potts said.

Despite the somewhat bleak numbers, shares in the grocer were on the up in early trading on Tuesday, rising 2.9% to 198p.

Broker trims profit forecasts

Following the lacklustre update, analysts at Shore Capital trimmed their profit forecasts for Morrisons’ current year to the lower end of the consensus range at £405mln following what they said was “disappointing” trading.

“Morrison has not been used to being a laggard in sector trading momentum leagues in recent years but Christmas 2019 has been challenging for the Group’s top-line”, the broker said, however, they added that the firm was undergoing “considerable ongoing change” and they took comfort in the group’s profit guidance for the current year.

ShoreCap also said they expected Morrisons’ dividend policy to be retained going forward as the business was “highly cash generative…with a strong freehold rich asset base”.

No reference to Christmas trading "dubious"

Meanwhile, Interactive Investor's Richard Hutner said it was "dubious" that Morrisons had not made any specific reference to its Christmas trading numbers, "particularly given the fact that one of its rivals at a similar price point, Aldi, was yesterday shouting its festive success from the rooftops".

"Morrisons’ performance should not prove difficult for others to emulate" Hunter said, adding that there were "prospects of better value" elsewhere in the sector.

--Adds share price, analyst comment and Kantar data--

Quick facts: WM Morrison Supermarkets PLC

Price: 185.15 GBX

Market: LSE
Market Cap: £4.45 billion

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