New Morrisons chief faces fresh profit fall

Supermarket chain Morrisons is expected to post another slump in half-year profits next week, leaving investors keen to hear the turnaround plans of new boss David Potts as he presents his first set of results to the City.

David Potts is the focus of attention as he attempts to turn Morrisons' fortunes around in the face of slumping profits. Picture: Ian Georgeson
David Potts is the focus of attention as he attempts to turn Morrisons' fortunes around in the face of slumping profits. Picture: Ian Georgeson

Brokers at Barclays expect the Bradford-based group to post a 2.5 per cent fall in half-year like-for-like sales, and a 23 per cent slide in earnings to £203 million compared to a year ago.

Potts took over as chief executive from Dalton Philips in March. Philips was ousted 12 months after the announcement of a three-year £1 billion programme to cut prices to fight the supermarket price war. This battle has seen discounters such as Aldi and Lidl take market share from the so-called Big Four major players – Tesco, Sainsbury’s, Asda and Morrisons.

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Morrisons, which is due to report its results on Thursday, is seen in some quarters as a takeover target, with shares spiking in recent days on speculation that South African retail billionaire Christo Wiese is running the rule over the business.

Wiese bought Sir Richard Branson’s gym chain Virgin Active for £682m and fashion retailer New Look for £1.9bn earlier this year.

Potts signalled his intention to get back to basics when he said in April he would cut 720 staff at Morrisons’ head office, as it recruits 5,000 more shop floor workers to improve service levels.

He said he wanted the business to focus more on things that “matter to customers” such as product availability and helping shoppers at checkouts.

Brokers at Barclays said: “We expect Mr Potts to be very focused on the retail basics, which will likely involve investment in price, quality and service. While this may be the right way forward, we are wary of the profit impact.”

Last month reports said that Morrisons was in advanced talks to sell its 150 M local convenience stores that generate annual sales of about £300m, as it concentrates on boosting its core supermarkets.

Barclays analysts also focused on whether Potts saw a future for the firm’s Match and More loyalty card introduced by his predecessor last October, and his plans for its internet shopping venture with Ocado.

Meanwhile, high street stalwart Argos is expected to report another tough period of trading next week as it continues to revamp its stores providing customers with iPads to order products instead of catalogues, as owner Home Retail Group posts latest figures.

City analysts expect sales at Argos, which has 788 shops, to report a like-for-like sales fall of 1.8 per cent, another quarter of declines.

It saw a 3.9 per cent slide in the previous quarter to May as a rise in sales of mobile phones failed to offset a decline in electrical goods. Brokers at Nomura said Q2 sales at Argos should be helped by an improving electricals market and increasing public awareness of the “vast changes in the business”.