Morrison shares are fizzing like a bottle of Prosecco, jumping as much as 14 percent after the U.K. supermarket posted its first increase in Christmas sales in four years on Tuesday. The glow may not last.
Cutting prices, having more products on the shelves and keeping more tills open helped Morrison to announce a 0.2 percent increase in like-for-like sales in the nine weeks through January 3.
That's good old-fashioned retailing, according to David Potts, the CEO who started his career 40 years ago on the check outs at Tesco. And it’s a far cry from a year ago, when same store sales fell 3.1 per cent and Potts' predecessor, Dalton Philips, was ousted.
But it’s a little too soon for investors to be cracking open that Prosecco.
While like-for-like sales climbed 0.2 percent, there was a 0.9 percentage point contribution from online, through Morrison's partnership with Ocado. Without this, underlying sales would have been down.
Beers, wines and spirits were also a big contributor to the Christmas success, indicating the basic grocery business still has some way to go.
And the threat from the German discounters remains potent. According to Kantar Worldpanel, the consumer research group, Lidl was the fastest growing supermarket in the three months to January 3, with sales up 19 percent. Aldi was a close second, up 13 percent.
The no-frills discounters are expanding their store estates apace, and many of their new outlets will be in Morrison's heartland of the north of England.
Given that competition, it may hard for Morrison to sustain that increase in sales. The company itself admits it may not be a "straight line" recovery.
On Monday, Gadfly suggested Morrison's cash flow (410 million pounds, according to Bloomberg estimates) and real-estate assets (the company owns 85 percent of its stores) would make it a ripe target for a private equity firm. British supermarkets are still cheap relative to European peers on a price-to-sales basis.
If the Christmas sales are a sign Morrisons is stabilizing, they only serve to make an LBO more likely.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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