Morrisons’ bosses take away ‘costly and distracting whistles and bells’
ANALYSTS have outlined the challenges facing Morrisons’ bosses as they try to revive the embattled business.
Morrisons today insisted it is “moving at pace” to turn around trading as it revealed another slide in sales.
The UK’s fourth biggest grocer said like-for-like sales fell 2.6 per cent, excluding fuel, in its third quarter to November 1. Including fuel, same store sales were 5.1 per cent lower following the steep drop in petrol prices.
Bradford-based Morrisons said the slide came as it continued to cut back on promotional vouchers, which hit sales by at least 2.4 per cent over the three months.
Responding to the update, Richard Hunter, the head of equities at Hargreaves Lansdown Stockbrokers, said: “Morrisons remains a play for the patient as sales continue to retreat, albeit at a lessening pace.
“Supporters of the stock will be looking past the trading statement to the underlying health of the business. Morrisons is cash generative, is paying down debt and has freed up some more capital by slashing its dividend. Meanwhile, it is aggressively addressing costs and pricing, as it battles to fend off the challenge presented by the likes of Aldi and Lidl.
“Even so, the fact remains that the supermarket sector is a notoriously competitive industry and others will not wait whilst Morrisons continues on its slow recovery. In particular, the current perceived wisdom of supermarkets moving towards convenience stores and online are not areas in which Morrisons has any notable strength, whilst the next trading period will bring the usual Christmas bunfight.
”The visible signs of progress have led the shares on to a good run, up 16% over the last year as compared to a 1% dip for the wider FTSE100. Even so, the general view remains that there is better value elsewhere, such that the market consensus of the shares as a sell looks likely to remain in place.”
Analysts from Bernstein said: “Falling like for likes and total sales worse than consensus will disappoint the market and is in line with our view that an undifferentiated retail offer will underperform the UK market. Morrisons has not yet found a trading and retail proposition that will differentiate it in the market place. However, it has a strong balance sheet which gives it more time than others to find a new identity. We are negatively inclined towards this stock but on a one year basis believe there will be enough positive catalysts for it to perform in line with the market.”
Analysts at Shore Capital said: “Within the Morrison proposition there are clearly a lot of dynamics at play. A new management team is trying to simplify the business for customers, operatives and suppliers alike, so creating a platform to drive volumes, margins and ultimately shareholder returns. At the coalface this means taking away largely costly and distracting whistles and bells e.g. coupons & vouchers, complex promotions, monthly schemes and elements of the ‘Match & More’ proposition and replacing them with a more straightforward offer revolving around product, price and promotion. Such a change in strategy is being implemented at pace, to the short term detriment of sales.
“Reaching the desired proposition is never-ending but within the plans we see generally stronger store disciplines, cleaner stores, improved availability and more impactful promotions year-on-year. ‘Made by Morrisons’ is also filtering its way into the fresh food offer through improved product formulations..whilst Market Street in its entirety remains a proposition that Morrison seeks to bring quality, differentiation and value.