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Morrisons eyes better profits as COVID-19 costs dwindle, cafes reopen

The supermarket chain has made a good start to the current financial year, with sales up 2.7% excluding fuel

WM Morrison Supermarkets PLC - Morrisons eyes better profits as COVID-19 costs dwindle down, cafes reopen

WM Morrison Supermarkets PLC (LON:MRW) is eyeing better profits now that COVID-19 costs are dwindling and cafes are about to reopen.

The grocer said this year’s profit before tax and exceptionals is forecast to be higher than the £431mln it would have achieved last year had it not waived the £230mln business rates relief.

READ: Former Post Office boss quits boards of Dunelm, Morrisons after legal ruling

The year ending in January 2023 is expected to see “meaningful profit growth” thanks to no direct COVID-19 costs plus the full recovery of lost profit.

The supermarket chain said it has made a good start to the current financial year, with “robust” like-for-like (LFL) sales against tough year-on-year comparatives.

In the 14 weeks to 9 May, group LFL rose 4.7% or 2.7% excluding fuel. Online sales, comprising its own website and its offering on Amazon, rocketed 113% and wholesale LFL climbed 21%, after starting to supply 230 extra McColl's convenience stores.

The FTSE 250 group has converted 25 McColl's stores to Morrisons Daily during the period, taking the total to 56.

It has also agreed on new supply arrangements, including buying group Unitas, wholesaler Blakemore and two other convenience forecourt retailers, Highland Fuels in Scotland and Gardner Garages in south-west England.

Morrisons said there was some pressure from commodity and freight inflation, though its investment in price for customers led to year-on-year deflation during the period.

Key seasonal events such as Mother's Day and Easter were particularly successful, and there has been a strong recent improvement in food-to-go sales.

COVID-19 costs during the quarter came in at £27mln, mostly due to extra colleague absence and more marshals during lockdown.

The firm added it has made progress with its sustainability programme, having acquired Falfish, a family owned wholesaler of sustainably sourced seafood based in Cornwall.

It has also made two major new environmental commitments: to be supplied by 'net zero'-carbon British farms by 2030 and to remove all plastic bags from its stores over the next year.

In the year ahead, it will open two new stores in Kirkby and Chelmsford, and two temporary replacement stores in Camden and Little Clacton, which are collectively expected to contribute 0.2% to sales.

"There is a big question mark over whether the easing of lockdown restrictions will be kind to Morrisons and the grocery retail market in general, with consumers expected to get out and about a lot more," said Ross Hindle, analyst at Third Bridge.

"To avoid being stuck in an increasingly squeezed middle, Morrisons' continues to foster its relationship with Amazon, triggering much speculation about a full-blown acquisition by Amazon in the near future."

"Despite currently coming off a low base, the experts we are speaking to expect Morrisons to continue to develop its wholesale business and to increase its margin accretive non-food and clothing offer. Like the rest of the big four, Morrisons is having to look well beyond food to find some margin protection."

Shares were flat at 183.86p on Tuesday morning.

--Adds analyst comment, shares--

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Price: 292.1 GBX

Market Cap: £7.07 billion

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