Morrisons warning as Safeway sales slump

Published on Friday 2 July 2004 14:21

SUPERMARKET group Morrisons today warned that a dreary sales performance at its newly acquired Safeway business would mean annual profits will be "substantially lower" than City forecasts.

The Bradford-based chain, whose shares dived 13 per cent in morning trade, said Safeway same-store sales were down 7.2 per cent for the year to date. In contrast Morrisons-branded stores showed growth of 9.2 per cent on the same basis for the 21 weeks to June 27.

The company said the performance of four Safeway stores which have already been converted to the Morrisons format had "exceeded expectations".

Prior to the makeover, the four stores were trading down 5.6 per cent, but since then sales increases have averaged 36.8 per cent, compared to the same period last year.

Morrisons has slashed prices at Safeway to try and win customers back but the cuts are impacting profits.

In a trading update, the firm warned: "Despite the strong performance of Morrisons stores in the first half and the success in the four converted stores, uncertainty on sales volumes inevitably exists during the transition of the Safeway stores to the Morrison brand and format.

"Against this background, and in view of the lower than anticipated first-half profits, it is likely that reported full-year profits for the current year will be substantially lower than current market expectations."

Morrisons, which recently opened its first Scottish store in Kilmarnock, completed its 3 billion takeover of Safeway in March this year.

The family-run grocer said that originally it had not intended to change strategy at Safeway for a few months after taking over the business. However, it said that when it took control, sales were falling fast so it was forced into introducing price cuts to keep the Safeway stores competitive.

Morrisons added that sales now appeared to have stabilised supported by a national press, radio and television advertising campaign. The main store conversion plan is to go ahead in August at the rate of three stores every week, with a total of 53 expected to be trading as Morrisons by the end of November.

Morrisons is the second big supermarket player to warn on profits in as many days. Yesterday, Sainsbury’s issued a profits warning.