Stock market relief as sales malaise at Morrisons eases

SHARES in Morrisons jumped more than 6 per cent yesterday as the supermarket major posted a slowdown in its sales decline, and revealed the number of items shoppers were putting in their baskets was improving.

The UK’s fourth-biggest grocer, which commands a 15 per cent market share north of the Border, also pleased the stock market by tightening its profit guidance and revealed company debt was better than expected.

However, City analysts said it was premature to say Morrisons had turned the corner as the group unveiled a 6.3 per cent fall in third-quarter like-for-like sales in the 13 weeks to 2 November.

That was an improvement on the 7.6 per cent slump in the second quarter, but worse than the market consensus forecast for a 5.2 per cent fall.

Group chief executive Dalton Philips, who took the helm at Bradford-headquartered Morrisons in 2010, said the number of items per basket was currently down 2.4 per cent year-on-year, significantly better than the 6.9 per cent recorded at the start of 2014.

The firm also narrowed its profits range guidance, saying earnings in the year to February were now expected to be between £335 million and £365m, compared with its previous forecast of £325m to £375m.

It also expects year-end net debt, currently £2.6 billion, to be £2.3bn-£2.4bn – £100m better than initially guided.

Dalton said the launch of its MLocal convenience stores and online operations over the past couple of years had picked up pace.

Morrisons also launched the customer loyalty scheme “Match & More” earlier this year, becoming the first of the big four supermarket giants to promise to match prices with discounters Lidl and Aldi, which have squeezed the whole sector in recent years.

Sainsbury’s also unveiled a new front in the battle to win back thrifty shoppers yesterday, opening a cut-price store with Danish firm Netto in Leeds, in the middle of the Yorkshire heartland of Morrisons.

That followed a profits warning from Morrisons last March, when Philips pledged to restore the group’s low-price image and boost sales volumes by spending £1bn on price promotions between this year and 2017.

“The highlight of the quarter was Match & More,” Philips said. “We’re very happy with the launch programme and the customer response.” The group did not say how many customers had signed up to the card.

He added that it was going to be “a dramatically cheaper Christmas for our customers this year versus last year”. However, he declined to say the worst was past, saying “it will take time for sales to improve”. Shares in Morrisons, down 42 per cent over the past year, closed up 10.1p or 6.2 per cent at 172.5p.

David Gray, a retail analyst with consultancy Planet Retail, commented: “Although brimming with ideas on how to solve the malaise surrounding the chain, Philips has yet to deliver a marked improvement in performance.

“If the price-matching loyalty scheme doesn’t deliver the necessary result, [his[ days may yet be numbered.”

Philips said that he did not expect his various initiatives to start to bear fruit until towards the end of the current financial year as reducing prices initially had “a deflationary impact on our sales”.

That’s because sharply cutting prices does not result in an instant sales increase because it reduces actual cash going through the tills.

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