Morrison Looks to Sales Improvement as Grocer Begins Fightback

Wm Morrison Supermarkets Plc Chief Executive Officer Dalton Philips predicted that sales will start to recover later this year as the smallest of Britain’s four main grocers fights back against discounters Aldi and Lidl.

Philips, who plans to cut prices by 1 billion pounds ($1.6 billion) over three years to win back customers, expects the first benefits of his actions to be seen toward the end of the second half, he said today on a conference call.

“Even though it’s early days, there is a real sense that the business is getting back on the front foot,” Philips said on the call. “We made the right calls early.”

Morrison rose as much as 5.8 percent in London trading, the steepest intraday gain since February. The shares have slumped about 30 percent this year as customers have deserted the grocer in favor of cut-price chains. Philips began a fightback in March when he announced plans to slash prices, a move that led to a plunge in first-half earnings.

Underlying pretax profit fell 51 percent to 181 million pounds in the six months ended Aug. 3, Morrison said today. That exceeded the 177.5 million-pound median estimate of 10 analysts compiled by Bloomberg.

The retailer boosted its interim dividend by 5 percent to 4.03 pence a share and confirmed that it plans to increase the full-year payment by the same proportion to 13.65 pence.

Cheaper Prices

The results provided early indications that customers are starting to take notice of the grocer’s cheaper prices.

The number of items purchased per basket declined 3.2 percent from a year earlier in the second quarter, an improvement on the previous quarter’s 5.9 percent drop. The decline was only 0.4 percent in fresh produce, the category in which Morrison has been cutting prices for longest.

“Basket dynamics suggest an encouraging early reaction by consumers to the major price resets,” James Grzinic, an analyst at Jefferies International Ltd., said in a note. “It may be a long journey, but we see more reasons to be more optimistic.”

The figures backed up a report last week from industry researcher Kantar Worldpanel, showing the first increase in Morrison’s market share for at least two years.

Philips is accompanying the price investment with a push into the growth areas of online and convenience retailing, where Morrison has trailed its main competitors.

Ocado Group Plc, the online grocer that is partnering the company in its Internet service, today reported a 16 percent increase in 12-week retail sales to 219 million pounds.

Online Boost

Morrison’s online business, which started in January, made a positive contribution of 0.4 percent to the retailer’s same-store sales in the first half. That wasn’t enough to stem the overall revenue decline. Same-store sales fell 7.4 percent in the six months, more than the 6.7 percent median decline predicted by 10 analysts in a Bloomberg survey and greater than the first-quarter’s 7.1 percent slide.

Morrison has been hit hardest by the expansion of discounters including German chains Aldi and Lidl, which are luring customers with lower prices and no-frills offerings.

The shares were little changed at 175.2 pence as of 9:23 a.m. in London, giving back most of their initial gain.

“The fundamental challenges remain the same,” John Kershaw, an analyst at Exane BNP Paribas, said in a note.

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