Morrison to quicken Safeway rebranding as losses hit £39m

Published on Friday 22 October 2004 02:36

THE struggling Safeway chain amassed losses of £39 million for new owner William Morrison over the first half of its trading year, with sales at the unconverted Safeway stores slowing alarmingly.

Safeway’s sales fell by just under 8 per cent in the six months to 25 July, a trend that has worsened in the first ten weeks of the second half.

Morrison said that in the latest period same-floorspace sales at unconverted Safeway shops dropped 10.1 per cent.

By sharp contrast, stores converted to the Morrison format are up 12.5 per cent in the opening weeks of the second half.

Morrison was partly able to play down the poor performance of the Safeway chain, acquired in a 3 billion auction last year, because of the strong performance of its core business.

Underlying operating profits, pre-exceptionals, rose to 209.3m, compared with 130.5m a year earlier, while like-for-like sales in the core business were up 8.9 per cent, and by 14.2 per cent including petrol sales.

Bottom-line pre-tax profits at the enlarged group came in at 121.6m, down from 131.6m last time, due to the drag on earnings by Safeway - within the 120m to 125m range Morrison gave last July as part of the first profit warning in the Bradford-based group’s 37-year history.

Sir Ken Morrison, chairman, said he still believed Safeway would prove a very good deal even though there had been financial and cultural problems combining the two businesses.

He said the group was to accelerate the conversion of Safeway stores, from three a week to four, adding: "This is an ambitious programme and one we will deliver."

In addition, up to 13,000 price cuts have been brought in at the Safeway stores acquired.

The City liked what it heard about sales at the converted stores, and Morrison’s shares were lifted 28.5p or 14.6 per cent to 222.75p.

Iain MacDonald, supermarkets analyst at Numis Securities, said: "We believe Morrison has a strong management and will be successful at integrating Safeway stores to the Morrison sales-driven brand."

Morrison’s acquisition of Safeway took it into Scotland for the first time after the monopolies regulator blocked rival bid approaches from Tesco, Asda and Sainsbury.

Morrison is currently the third-biggest food retailer in Scotland with a market share of 19 per cent compared with Tesco and Asda both on about 25 per cent.

The group opened new stores in Scotland at Kilmarnock and Falkirk during the period - while also saying the conversion programme would be largely completed by the end of next year. A total of 41 Safeway stores have been converted so far.

Meanwhile, Sir Ken said the group was sounding out the market about the possible sale of 140 Safeway convenience stores.

"We’ve made no secret of the fact that we’re testing the market to see what the strength of offers are for the small stores. We’ll make further comment in due course if there’s anything to say," he added.

The interim dividend rises 13.6 per cent to 0.625p.