New warning from Morrison

EMBATTLED supermarket group Wm Morrison was in the wars again yesterday as it put out a "clarification" statement of City profit expectations that was widely taken as yet another profits warning from the company.

After Morrison said annual profits would fall well short of analysts' expectations, in the latest sign it is struggling to integrate the recently acquired Safeway chain, its shares plunged 3 per cent.

The stock later recovered somewhat to close off 2 per cent, or 3.75p, at 183p.

Underlying pre-tax profits, excluding exceptional items and goodwill, for the year to January 2006, would be between 50 million and 150m, Morrison said.

By sharp contrast, a company spokesman said later that City food retailing analysts had previously been forecasting a range of 225m to 275m. Morrison, Britain's fourth-biggest supermarket, posted an underlying profit of 320m in the year to January 2005.

Sanjay Vidyarthi, a retail analyst at brokers Teather & Greenwood, said: "Even though there was a wide range, this is still well below what people were looking at.

"In terms of clarification, it doesn't really give clarification in that it's not at all clear where this additional cost or whatever it is coming from."

T&G has slashed its annual profit forecast to 100m from a previous 275m.

Morrison bought Safeway in 2004 after Britain's biggest three supermarkets - Tesco, Asda and Sainsbury respectively - were blocked by competition regulators from picking up Safeway, which was at the time the No.4.

But Morrison has struggled to integrate Safeway against a trading backcloth of slower consumer spending and intense price competition, and amid rumours many Safeway's customers have been put off by Morrison's more budget-focused offering.

Yesterday's "clarification" was even more of a surprise because, at its annual general meeting on 26 May, the company said it would be unable to give guidance on profit levels until its half-year results in October because of the challenge of integrating Safeway.

However, Morrison did repeat yesterday that it expected its performance would improve next year.

It said: "In 2006-7, there remains every indication that financial performance will improve significantly following completion of the conversion process."

The City was largely unimpressed.

Richard Hunter at brokers Hargreaves Lansdown was no more inclined to optimism than Vidyarthi.

"It's just one thing after another with Morrisons. It's three profit warnings in the last six months.

"A big hole just ahead of their results and the City really questions whether they've got their arms around the Safeway acquisition at all."

Morrison has spared no effort to complete the Safeway integration swiftly, but its two-a-week store-conversion rate has been a real strain for a mid-sized retailer in Europe's most competitive retail market.

Questions have also been raised regarding how successfully Morrison's value-oriented image washes with the more affluent customer base of Safeway's southern English heartland.

A Morrison spokeswoman said she could not guarantee that yesterday's bad news would be the last.