Morrisons sales growth marred by strategy fears

Published on Saturday 5 September 2009 13:46

SUPERMARKET giant Morrisons is set to unveil strong sales growth this week, but it will be pressed on growing City concerns about a perceived weakness in its medium-term strategy.

Analysts say Morrisons' effective brand promotion is likely to have driven hefty interim sales, but they point to a question mark over its lack of diversity from food into other areas, such as clothes, and its fledgling internet offering.

The Yorkshire company, which expanded strongly into Scotland and the south of England with the 3 billion acquisition of Safeway in 2004, is expected to announce like-for-like sales growth of 7.5 to 8 per cent.

This would be in line with sales growth of 8.2 per cent in the first trading quarter of the year to 3 May. A strong rise in the interim dividend is also expected.

During the first quarter, Scotland and the south of England showed the biggest sales growth, in double digits, and it followed a robust performance in the previous 18 months.

Freddie George, supermarket analyst at broker Seymour Pierce, said: "People have been calling the 'top' of Morrisons' growth for some time, but I think it can continue.

"However, there will be some focus on what is a very fledgling non-food and internet offering from the group. They have got to do something on that."

George said latest sales growth at the company would have stayed strong because "of a massive under-performance in the south of England 18 months ago".

At that stage there were still doubts whether Morrisons could transfer its "value-proposition" to within the M25. "That theory has now been put to bed. Morrisons has proved people down south appreciate value too," George added.

Seymour Pierce has pencilled in an interim pre-tax profit of 334 million against 295m in the same period of 2008. It expects the dividend will be hoisted to 1.1 pence from 0.8p.

That concern about Morrisons' lack of a sizeable non-food presence in a highly competitive food market is echoed elsewhere in the City. Darren Shirley, food retailing specialist at Shore Capital, said: "We have no concerns about Morrisons over the next two years because sales growth and earnings from the core operation should be strong.

"But people will be asking about their medium-term strategy. There is no meaningful non-food proposition in areas like clothes and electricals unlike Tesco and Asda. And there is little coming through on any web offering at the minute."

Shirley forecasts a pre-tax profit of 341m and a dividend of between 1.1p and 1.2p.

City analysts say Morrisons' progress has been underpinned by the strong brand promotion under chief executive Marc Bolland, spearheaded in an advertising campaign by Top Gear presenter Richard Hammond.