William Morrison Supermarkets Plc (MRW) faces a second year of declining same-store revenue as a lack of convenience stores and the absence of an online grocery business hampers progress, Chief Executive Officer Dalton Philips said.
The retailer will “definitely not” report an increase in comparable sales this year, Philips said on a conference call today after Bradford, England-based Morrison reported a 1.8 percent drop for the first quarter. Same-store sales fell 2.1 percent in the company’s last financial year.
“We face these structural headwinds of not being in those two emerging channels, online and convenience stores,” Philips said on the call. “Until we have a meaningful presence” in those areas, “we are always going to face that.”
The smallest of the U.K.’s four main supermarket chains has been losing market share to discounters such as Aldi and Lidl as well as upscale competitors such as Waitrose. Its sales performance has also fallen behind Tesco Plc, (TSCO) which operates more than 1,500 convenience stores, and J Sainsbury Plc, which has more than 500 smaller outlets and said yesterday it would continue to open them at a pace of one-to-two a week. Morrison plans to have 100 convenience stores by the end of the year.
The shares fell 2.8 percent to 288.1 pence at 10:37 a.m. in London trading. They have increased 9.5 percent this year after dropping 19 percent in 2012.
Philips repeated today that Morrison is on track to start an online grocery service by January 2014. He declined to comment on progress in talks with Ocado Group Plc (OCDO) about using the Internet grocer’s technology and operational know-how.
“We’re going online” and “we’re not dependent on a deal with Ocado,” Philips said on the call.
Ocado fell as much as 12 percent in London trading and was down 5.3 percent at 198.9 pence as of 10:37 a.m. The stock rose 12 percent yesterday on anticipation of news on the talks.
Morrison is “comfortable” with analyst estimates for a 1.5 percent drop in full-year same-store sales, Philips said.
“Although we remain cautious on the economic environment and consumer spending, our full-year expectations remain unchanged,” the grocer said in the statement.
Estimates for pretax profit of about 810 million pounds ($1.26 billion) “are in the right ball park,” Finance Director Trevor Strain said on the call.
Morrison “continued to underperform its peers” in the first quarter, Clive Black, an analyst at Shore Capital in Liverpool, said in a note. Sainsbury has reported 33 consecutive quarters of like-for-like sales growth, while market leader Tesco halted a run of declines in its most recent quarter.
Ant & Dec
The sales decline represented an improvement on the previous quarter, when same-store revenue dropped 4.1 percent, according to Philip Dorgan, an analyst at Panmure Gordon & Co.
“This had, however, been expected” and “reflects a return to basics and the fact that it is communicating its points of difference better,” Dorgan said in a note. He has a sell recommendation on the stock.
To improve sales, Philips is placing an emphasis on fresh produce and a high-profile advertising campaign featuring television presenters Ant & Dec. The CEO didn’t get a bonus and was paid almost 40 percent less last year as the company failed to meet targets, Morrison said in its annual report this week.
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