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Slowing sales growth hits Morrisons shares despite profit jump
September 14, 2017 / 10:55 AM / 11 days ago

Slowing sales growth hits Morrisons shares despite profit jump

Shoppers walk past a branch of the food retailer Morrisons in west London, Britain, January 7, 2017. REUTERS/Toby Melville/Files

LONDON (Reuters) - British supermarket chain Morrisons reported slowing sales growth on Thursday, sending its shares down 5 percent despite rising profit and the CEO’s assertion that its recovery is still on track.

Presenting results that showed a seventh straight quarter of underlying sales growth, Chief Executive David Potts said it is making progress in its supermarkets and beyond.

Morrisons, which is based in Bradford, northern England, is turning around the performance of its over 500 UK supermarkets while also trying to build a broader business by pursuing capital-light opportunities in online and wholesale markets.

That plan has driven a 27 percent rise in the company’s shares over the past year, making it one of the most expensive stocks in the sector on a price/earnings (PE) basis.

The shares were down 5 percent at 232 pence by 1042 GMT, with some analysts expressing disappointment that like-for-like sales had risen only 2.6 percent from the second quarter.

“The market may feel a little underwhelmed by the lack of clearer targets on the ‘self-help’ opportunity,” added analysts at UBS, which has a “neutral” rating on the stock.

A former executive at market leader Tesco, Potts joined Morrisons in 2015 tasked with leading a recovery after Morrisons had been badly hurt by the rise of German discounters Aldi and Lidl in its northern England heartland and mis-steps by previous management.

He has delivered a steady improvement in trading, helped by more competitive prices, improved product ranges and availability as well as better customer service.

Potts has also overhauled the company’s online strategy through a renegotiated agreement with distributor Ocado and struck wholesale supply deals with Amazon and the McColl’s convenience chain.

‘BIGGER MARKETS’

“So far, so good,” Potts said of the turnaround.

“We’re holding our own as we fix our supermarket business and then look ahead to growing into bigger markets,” he told reporters.

Morrisons, which trails Tesco, Sainsbury’s and Wal-Mart’s Asda in annual sales, made an underlying pretax profit of 177 million pounds ($234 million) in the six months to July 30, in line with analysts’ expectations and up nearly 13 percent from the same period last year.

Prior to Thursday’s update, analysts’ average forecast for 2017/18 pretax profit was 371 million pounds, up 10 percent from the previous year’s result but still a long way from the heady 935 million pound profit achieved in 2011/12.

Potts said that 3.9 percent more shoppers visited Morrisons in the six-month period, with turnover up 4.8 percent at 8.42 billion pounds.

Morrisons increased its “medium term” target for incremental profit from wholesale, services, interest and online operations to between 75 million pounds and 125 million pounds, from 50-100 million pounds previously.

The group forecast total wholesale sales to all its partners would exceed 700 million pounds by the end of 2018 and more than 1 billion pounds “in due course”.

Potts said that Morrisons is “learning to manage” inflation as imported food prices are driven higher by a weaker pound.

“If we look out past the end of this year I think we can start to see it unwind and we should start to see it taper down,” he said.

Morrisons also cut net debt to 932 million pounds -- below its 1 billion pound year-end target -- and raised its interim dividend 5.1 percent to 1.66 pence.

($1 = 0.7576 pounds)

Editing by David Goodman

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