Morrison Turnaround at Least Another Year Away, CEO Philips Says

William Morrison Supermarkets Plc Chief Executive Officer Dalton Philips said a full recovery is at least another year away even though the U.K. grocer should see the first sales growth for two years in the next quarter.

“The turning point will be 2015,” once Morrison has revamped its large supermarkets, has an established online service and about 200 convenience stores, Philips said today on a conference call after the Bradford, England-based company reported the steepest drop in same-store sales in almost a year.

The decline in same-store sales was the seventh straight quarterly drop, weighed down by the lack of an online offering and fewer convenience stores than rivals. The grocer, whose share of the U.K. food retail market is being eroded by competition from discounters Aldi and Lidl, said today it continues to see heavy promotional activity across the industry.

“Morrison is losing footfall and seeing a lower basket,” Clive Black, an analyst at Shore Capital in Liverpool, said by e-mail. “The discounters are nibbling away at its trade.”

Morrison’s share of the U.K. grocery market dropped to 11.2 percent in the 12 weeks ended Oct. 13, while Aldi’s share rose to a record 3.8 percent and Lidl’s share climbed to 3 percent, Kantar Worldpanel said Oct. 22.

The shares fell 1 percent to 278.2 pence at 9:57 a.m. in London. The stock has gained 5.9 percent this year, failing to fully recoup the 19 percent decline of 2012.

Sales Drop

Sales at stores open at least a year fell 2.4 percent excluding gasoline, in the 13 weeks ended Nov. 3, the company said today. That missed the median of eight estimates in a Bloomberg News survey for a 1.6 percent drop and was the weakest performance since a 4.1 percent decline in the three months ended Feb. 3.

Philips expects sales growth to be restored in the fourth quarter, and not just because revenue was so weak in that period last year. Morrison starts its Christmas advertising tomorrow with a commercial featuring comedians Ant & Dec and will have 100 convenience stores by the end of the year, he said.

Even so, “ongoing headwinds haven’t gone away,” the CEO said. The lack of an online service and a smaller convenience-store presence than its main competitors shaves 1.5 to 2 percentage points off sales growth, the CEO said.

Morrison plans to commence an online grocery service in January with the help of Internet-only grocer Ocado Plc. The service should reach more than 50 percent of U.K. homes by the end of next year, including London, the retailer said.

Convenience Stores

Morrison also aims to double its number of convenience stores next year, though will still have a considerably smaller estate than Tesco Plc, which operates about 1,500 such stores, and J Sainsbury Plc, which has more than 500.

Earnings estimates are likely to fall by about 2 percent “in light of heightened uncertainty,” John Kershaw, an analyst at Exane BNP Paribas, said in a note today. The extent of the revenue decline was “disappointing,” coming against the backdrop of already reduced expectations, he said.

“We expect the market to remain challenging for the remainder of the year and continue to manage the business tightly,” Morrison said in the statement. “The third quarter was in line with our expectations and accordingly our financial outlook for the full-year remains unchanged.”

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