Morrisons tipped for profits jump amid tough market
A consensus of City analysts forecast that like-for-like sales at the supermarket will rise 2.6 per cent in the first six months of 2017, with HSBC tipping half-year pre-tax profits to jump 30 per cent to £186 million.
• READ MORE: Morrisons turnaround continues with surge in profits
However, second-quarter sales are expected to show a slowdown, with broker Jefferies pencilling in a 1.7 per cent rise in comparable sales, which compares to growth of 3.4 per cent in the first three months of the year.
George Salmon, equity analyst at Hargreaves Lansdown, said: “Competition has been intense to say the least, and Asda’s sales have recovered in recent months after another round of price cuts.
“Investors will be hoping this doesn’t mean customers have been migrating away from Morrisons stores, which would take the shine off the group’s own recovery.”
Morrisons chief executive David Potts has led a recovery of the grocery chain by investing in price cuts and calling time on under-performing stores in attempts to turn the page on the supermarket’s ill-fated era under ousted boss Dalton Philips.
In his latest attempt to reinvigorate the supermarket, Morrisons said in August that it will relaunch the Safeway brand after striking a deal with McColl’s to supply the convenience store chain with groceries.
The partnership will see the supermarket supply Safeway and branded products to 1,300 convenience shops and 350 newsagents starting from January next year.
The move will help Morrisons secure wholesale sales of £700m including tobacco by the end of next year, with the amount rising to £1 billion.
Graham Spooner, investment research analyst at The Share Centre, said: “The share price has trended sideways since February, as a result of competition concerns in what remains a very crowded market place.
“The recent deal to supply McColl’s Retail Group was viewed as a positive and the market will be keen to see if the overall groups restructuring plans remain on track and how pricing pressure is affecting performance.”
Potts’ efforts, which also includes a deal to sell groceries through Amazon, come as the “big four” – Tesco, Asda, Sainsbury’s and Morrisons – remain locked in a bitter price war sparked by German discounters Aldi and Lidl and face further challenges from a slowdown in consumer spending.
David McCarthy, head of consumer retail at HSBC, is even warning that Morrisons, the smallest of the big four, is at risk of falling behind Aldi “within two years”.
He added: “On current market share trends, Morrisons could fall behind Aldi within two years and in some categories is likely to already lag Aldi. For most of the overlapping range, Aldi’s buying power will be greater than Morrisons’.
“Morrisons knows all this and has been searching for low-cost growth – hence its strategic moves to partner with Amazon and the move to wholesaling, with the McColl’s agreement being a step change in the business.”