In short, the self-help plan at beleaguered supermarket chain WM Morrison (MRW) appears to be working. Even broker Jefferies said its "hefty expectations" for the group's set of half-year figures "were beaten across the board". First of all, the company reported a third consecutive quarter of positive like-for-like sales growth - up a solid 2 per cent during the second quarter despite the wider deflationary backdrop. Margins have also started to recover, up 26 basis points to 2.6 per cent, while free cash flow improved from £479m to £558m year on year. That has allowed the group to pay down its debt by £477m, inching closer to its target of less than £1bn in debt by 2018.
So just how is Morrisons and its chief executive, David Potts, pulling this off? First of all, Mr Potts says the customer shopping trip is improving: queues are shorter, stock availability is higher and customer service is better. This has been helped by working on the external partnerships Morrisons builds. The group signed a new supply agreement with US behemoth Amazon (US:AMZ) - a deal that reeks of 'if you can't beat them, join them' - and shoe repairs company Timpson to help run its dry-cleaning business. Post period-end, the group also renegotiated contracts with online grocery specialist Ocado (OCDO), the terms of which were far more favourable.
Cost savings are still top of the agenda. During the first half Morrisons clawed back another £189m and it now expects to exceed the three-year target for £1bn-worth of cost savings by the end of the current financial year. This focus on sales, margins, cash and assets has clearly helped to improve profitability, too: underlying pre-tax profits rose 11 per cent to £157m - that figure moves up to 34 per cent if you factor in the previous year's restructuring costs. Mr Potts says he remains confident the group can achieve its medium-term target of an extra £50m-£100m in incremental profits.
Analysts at Jefferies expect EPS of 10.58p for the year ending January 2017, up from 9.64p in 2016.
| WM MORRISON (MRW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 210.8p | MARKET VALUE: | £4.92bn | |
| TOUCH: | 210.8-210.9p | 12-MONTH HIGH: | 212p | LOW: 139p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 22 | |
| NET ASSET VALUE: | 166p | NET DEBT: | 33% | |
| Half-year to 31 July | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 8.06 | 126 | 4.6 | 1.50 |
| 2016 | 8.03 | 143 | 4.7 | 1.58 |
| % change | - | +13 | +2 | +5 |
Ex-div: 29 Sep Payment: 7 Nov | ||||
