Wholesale operation helps Morrisons combat consumer caution

Supermarket Morrisons has posted a hike in annual underlying profits despite a slowdown in retail sales as Brexit uncertainty knocked shoppers’ confidence.

Morrisons reported an increase in pre-tax earnings and overall sales. Picture: Mikael Buck/Morrisons

The UK’s fourth-biggest supermarket reported an 8.6 per cent rise in underlying pre-tax profits to £406 million for the year to 3 February.

The chain saw like-for-like retail sales growth slow to 0.6 per cent in the final three months, down from 1.3 per cent in the third quarter.

But like-for-like sales overall rose 3.8 per cent in the fourth quarter thanks to a 3.2 per cent contribution from the wholesale division, which includes tie-ups with McColl’s and Amazon.

Its results for the 12 months showed that, on a statutory basis, pre-tax profits fell 15.8 per cent to £320m after exceptional costs.

Chief executive David Potts said the group saw a much more “challenging autumn as consumers were more cautious in more uncertain times”.

But he said the group’s turnaround was “well on track” and added that it responded quickly to the shift in consumer sentiment in the autumn as Brexit uncertainty took its toll, and 2018 “ended well” as a result.

The group also announced a special dividend of 4p a share, helping to boost its full-year investor payouts by 25 per cent.

Morrisons said full-year comparable sales lifted 4.8 per cent, up from 2.8 per cent in the previous year, as its wholesale deals provided a boost.

The group said it was expecting to supply McColl’s remaining 300 or so convenience stores towards the end of 2019.

It is also trialling converting ten McColl’s stores to Morrisons Daily convenience stores.

Last week, the group brought the Safeway brand back to the high street for the first time since 2005, with two Safeway Daily stores opened in partnership with MPK Garages.

Morrisons said it had achieved its target of £700m in annualised wholesale supply sales ahead of its end-of-2018 target and is sticking to aims to increase this to £1 billion in “due course”.

Potts said the group will continue to open a “handful” of new stores each year.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, described the results as “good going” from Morrisons, with the real “jewel in [its] crown” its wholesale supply deals.

She added: “That added dough is needed to feed the bottom line, in what has become an increasingly competitive industry.”