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Morrison Sales Slump Worsens as Shoppers Flee to Discounters

May 8 (Bloomberg) -- Wm Morrison Supermarkets Plc, the smallest of the U.K.’s four main supermarket chains, reported the steepest sales drop in recent history, explaining why the grocer slashed prices last week in an effort to regain shoppers.

Revenue at stores open at least a year fell 7.1 percent in the 13 weeks ended May 4, excluding gasoline and value-added tax, the Bradford, England-based retailer said today in a statement. That compares with the median estimate of 14 analysts surveyed by Bloomberg News for a 5.3 percent decline.

Same-store sales are unlikely to improve any time soon, Chief Executive Officer Dalton Philips said April 30 after the grocer stepped up the battle against discounters Aldi and Lidl and said it would cut prices by 1 billion pounds ($1.7 billion) over three years. Of the U.K.’s big four grocers, Morrison has been hurt the most by the march of the budget chains, which are winning shoppers with cheap and low-frills offerings.

It’s not only Aldi and Lidl that make life more difficult for Morrison. Larger competitors Tesco Plc and Wal-Mart Stores Inc. have also announced price cuts of a similar scale.

“It’s probably Morrison’s worst-ever performance,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “They only started cutting prices at the very end of that period so the deflationary impact would be pretty small.”

Morrison shares rose as much as 3.6 percent in London trading, after initially falling to an eight-year low. The price may have been boosted by value investors placing “a few big orders,” Bruno Monteyne, an analyst at Sanford C. Bernstein in London, said by e-mail.

Profit Forecast

The stock was up 2.8 percent at 196.2 pence as of 11:06 a.m., trimming its decline this year to 25 percent.

Morrison last week escalated the grocery battle by cutting prices by an average of 17 percent on 1,200 products from fruit scones to baby wipes, the second round of cuts since Morrison said March 13 that the strategy will cause profit to plunge.

The price cuts will reduce sales going through the tills and be deflationary, Philips said last week.

The company’s performance should therefore no longer be solely measured by same-store sales “but by volume growth, which is the key metric in a deflationary environment,” Philips said today on a conference call with journalists. The company will report volume growth numbers and other new key metrics at its interim results in September, the Irishman said.

In its first round of price cuts on fresh produce, sales of those items increased by 40 percent, with broccoli soaring 200 percent.

‘Too Vague’

Still, for now “we were disappointed; it wasn’t a strong Easter for us,” said the CEO, who has been at the retailer’s helm for four years.

The grocer today confirmed its forecast for full-year underlying pretax profit of 325 million pounds to 375 million pounds. Earnings in the previous fiscal year were 785 million pounds on that basis, the second straight decline.

Morrison also reiterated that it is on track to open 200 convenience stores by the end of the year, and said its online grocery service, started in January, is performing ahead of expectations. It will make its first London delivery on May 12.

“While we agree that the management team is making the right strategic changes, we think the plan is still too vague and we see lots of uncertainty about the team’s ability to execute the plan,” said Bernstein’s Monteyne.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Paul Jarvis, Robert Valpuesta

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