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In the US sitcom "My Name Is Earl", each time something good happens to the moustached anti-hero, something bad happens in return, until he finally makes a list to repair his deeds. Sir Ken Morrison is unlikely to be a regular 'Earl' viewer, but he would doubtless sympathise.
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Last month, the supermarket chain launched a new marketing campaign in order to revamp its image, promoting its fresh food offer. Two weeks later, an outbreak of e-coli was traced to two of its deli counters in Scotland.
Today, the group posted an excellent set of half-year results, well ahead of analysts' expectations., only to then face a barrage of questions about an Office of Fair Trading probe into the fixing of milk prices.
First, the numbers: like-for-like sales grew by 2.7 per cent excluding fuel, reflecting strong growth in stores converted from the Safeway estate. Operating margins also improved to 4.1 per cent as a result of lower marketing costs and price investments. Pre-tax profit was boosted by a £16.5m gain on property transactions. Even with exceptional items, operating profit was £247.4m, compared to £157.8m last year.
Sir Ken Morrison says that Morrison was not involved in the "Dairy Products retail price initiative", pointing out that the OFT probe covers a period prior to its takeover of Safeway. That's no bad thing, since Morrisons has enough on its to-do list without having regulators on its back too.
Its optimisation plan is progressing well, with staff productivity improving and distribution costs coming down. A new distribution centre in Swindon has reduced 'food miles' in the south east. A new logo has been launched and the group is also exploring new retail formats with the recent opening of a small supermarket at Erskine.
By the end of July 2008, the group intends to relaunch 9,000 lines under its own label, with new packaging. It's also planning another million square feet of new store space over the next three years, along with a new abattoir to improve supply efficiency. Meanwhile, credit market turmoil has put back any plans to hive off Morrison's property assets - something that disappointed most analysts.
Broker Citigroup forecasts EPS of 13.8p for 2008.
Morrison's debt is set to rise again amid all this capital expenditure. But the group's finances are sound, as Morrison recently renegotiated its banking facilities. All in all, good value, at 283p.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
